The Darktrace (LSE: DARK) share price collapsed from its peak in late 2021. But after hitting a bottom in July, it’s gained 35%.
Is the cybersecurity technology stock at the start of a new bull run? Today, I’m looking at a few things that I think could send the price up further.
Results
Firstly, full-year results should be with us on 8 September. If they’re as good as the firm’s July trading update suggest, I think we could see a healthy share price boost.
Darktrace expects to report a 32% rise in customer numbers over the previous year, and a 48% increase in revenue. It also reckons there’s an adjusted EBITDA margin of at least 19.5% on the cards. And it expects free cash flow of around 95% of adjusted EBITDA.
That all sounds good, but when it comes to bottom-line pre-tax profits and earnings per share, all we’ve seen so far are negative numbers.
I want to see how that situation is developing. The year to June 2021 brought a loss per share of 29 cents. But signs of a move closer to positive earnings could be received well by the market.
Founder
Then there’s the business with co-founder Mike Lynch, who’s fighting civil proceedings brought against him by Hewlett-Packard over the 2011 sale of Autonomy.
The board has denied any link between the company and the case, saying: “Neither Darktrace nor any of its acting executives was a party to the civil proceedings. Neither Darktrace nor its acting executives are the target of any investigation“.
I see no reason to think there’s any connection, and Dr Lynch has stood down from his role at Darktrace. But uncertainty of this kind really does affect investors. The sooner we see it resolved, the better.
Shorting
Back in January, Darktrace shareholders were rocked by a report that hedge fund ShawdowFall had taken a big short position on the stock.
According to The Telegraph at the time, ShadowFall said: “We believe that the quality of the Darktrace business is watery-thin, driven by an aggressive, promotional, sales focus, which we doubt will stand the test of time“.
As it turns out, ShadowFall did take a short position, but in October 2021 — which turned out to be well-timed. But since then, the shorting threat has disappeared. And today, I can’t find any evidence of any open short positions against Darktrace.
But investors still appear spooked by the January allegations. I think that brings us back to my first point, about needing to see a positive set of results.
But wait…
Two of these hurdles are, I think, wholly emotional. I don’t see any real threat from the Lynch case. And fears from the shorting episode can surely be put to rest by the results.
But even if the results are good, Darktrace still faces plenty of risk. The cybersecurity business is a very competitive one, and success is all down to advances in automated software technology. Who’s going to come up with the next major step? I’ve no idea.
But right now, I might risk a small amount of cash and may buy at the current Darktrace share price.
