The Darktrace share price is climbing. Here’s what I’d do

Rupert Hargreaves explains why he thinks the Darktrace share price has tremendous potential for growth, considering the company’s expansion.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

After treading water at the beginning of August, the Darktrace (LSE: DARK) share price has exploded in recent weeks.

Unfortunately, it looks as if I missed my chance to buy the stock in the middle of August. Back then, it was changing hands for around 560p. But it’s jumped nearly a third since hitting this level.

However, I still think the company has tremendous potential. As such, while the stock continues to climb and becomes more expensive, I’m still interested in buying a technology company like this for my portfolio. 

Darktrace share price growth

The global cybersecurity industry is expected to grow at a compound annual rate of more than 10% over the next few years. While plenty of companies are fighting for market share in this industry, this growth potential suggests there will be room for all of these competitors in the market. 

Darktrace has a unique USP, which helps the company stand out against its competitors. Self-learning AI drives the group’s software. It’s capable of disrupting cyberattacks in real-time by learning the typical patterns of work across an organisation. The software can then identify emerging signs of a cyber threat and take action to stop the disruption.

As the system’s self-learning, it continually develops its understanding of the organisation it’s tasked with protecting. This reduces the need for software updates, which can be a critical weakness in an IT system. 

If the company’s recent results are anything to go by, customers are continuing to snap up its offer.

Booming demand

The group ended its 2021 financial year with 5,600 customers, an increase of 42% year-on-year. This growth justifies the recent performance of the Darktrace share price, in my eyes.

And it’s growing much faster in some markets than in others. For example, in Australia, the number of customers increased 60% and the group doubled its headcount across offices in the country.

Unfortunately, the group’s still loss-making. This is, of course, disappointing. Still, Darktrace is investing heavily in its product offer and expansion plans.

There’s a trade-off to be made here. If the company doesn’t invest in its product, it runs the risk of  cybercriminals finding a way around its software firewalls. This would be devastating to the organisation’s business model. Its reputation is everything. No customer is going to return knowing the group’s software isn’t up to scratch. 

Based on all of the above, I still think the company’s growth is only just getting started. As such, I’d buy the stock for my portfolio today.

Even though the Darktrace share price looks expensive, as I’ve covered before, it’s not particularly expensive, compared to its international peers. I think this is probably a more suitable way of valuing the enterprise, considering its global footprint.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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