Since it first went public back at the end of April of 2021, the cyber-security start-up Darktrace (LSE: DARK) has seen its share price almost triple in value, going from 330p to a high of 909p last month.
The Darktrace share price is now experiencing a slight pullback, but is this a sign of a decline or an opportunity to buy?
Why the surge?
Darktrace has been operating in the cyber-security sector since 2013, but this year saw one of its largest gains in revenue and customers since it was founded. By June of 2021 the company posted revenues of $281m, a 41% increase over the previous 12 months, as well as a 45% jump in the number of customers. This news came out only two months after its initial price offering and undoubtably had a hand in the Darktrace share price surge.
Can it keep going up?
I’ll admit that I don’t really understand the realm of cyber security, but it is clear to me that the need for better and better technology in this sector isn’t going away any time soon.
Most of us will remember the 2017 NHS attack that brought hospitals across the country to a standstill, but the problem has only gotten worse since then. It has been reported that, in August of 2021 alone, there were over 80 documented cyber-attacks and data breaches, which have affected more than 60 million people across the world. This was considered to be a slow month..!
One of the aspects I like about Darktrace is that its revenue is subscription based. Subscriptions lock customers in and guarantee lump sums of revenue at predictable times of the year, which will allow Darktrace to focus on developing its technology instead of having to sell to customers again and again.
So long as Darktrace’s client list continues to grow and its AI based security is able to adapt to new challenges, I think that there’s a good chance Darktrace’s share price will continue to rise over the coming years.
Before jumping into an investment, it’s worth considering the fact that there are many external factors could have or might go on to affect the Darktrace share price.
Sometimes a big price surge is caused by investor excitement rather than any underlying fundamental value. Everyone wants to be in on the hot new thing before it’s too late, but meteoric rises often come before sudden crashes and I can’t shake the feeling that this will play out with Darktrace’s share price.
Also, in this industry, reputation is everything. I may not understand the ins and outs of cyber-security, but I know that if a company has a data breach, I personally will struggle to trust that company again in the future.
Only time will tell if Darktrace stands up to the challenges of the future, but given its share price action and the fact that just one security breach could tank customer confidence, I won’t be adding it to my portfolio.
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James Reynolds 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.