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Proofpoint (PFPT) on Growth Trajectory: Should You Hold?

Zacks Equity Research

A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. Here we have discussed Proofpoint Inc. PFPT, a stock with expected long-term earnings per share growth rate of 29.3% and Growth Style Score of ‘A’.

In the last one year, Proofpoint has outperformed the Zacks Computer Software-Service industry. The stock has returned approximately 34% in the said period, outperforming the industry’s gain of just 24.6%.

Let’s look at the reasons behindProofpoint’s solid momentum.

Driving Factors

Proofpoint reported better-than-expected results for top line in the first quarter and raised its outlook for 2017. Although the company’s bottom-line results fell short of estimates, the figure improved year over year.

Proofpoint reported total revenue of $113.3 million, up 43.3% year over year, mainly driven by customer additions, improved add-on-sales and strong renewal rate. The company’s revenues also surpassed the Zacks Consensus Estimate of $110 million and moved ahead of its own guidance range of $109–$111 million.

The company’s adjusted loss per share narrowed year over year to 38 cents from 54 cents posted in the year-ago quarter. The year-over-year improvement was primarily stemmed by strong top-line growth and efficient cost management, which were partially offset by higher share counts.

Proofpoint also raised it guidance for the full year. For 2017, the company anticipates revenues in the range of $496–$500 million, up from the earlier guidance range of $488–$492 million. Billings’ guidance for the year has been revised upward and is now anticipated between $619.0 million and $623 million. Earlier, the same was projected in the range of $611–$615 million.

Similarly, non-GAAP earnings per share are now expected to be between 56 cents and 59 cents, up from the previous guidance range of 49–52 cents.

Proofpoint is a leading security-as-a-service provider that focuses on cloud-based solutions for threat protection, compliance, archiving & governance and secure communications. The company’s sustained focus on launching products, acquisitions and partnerships have helped it to register more 40% revenue growth consistently for the last few quarters.

According to a Markets and Markets report, the cyber security market will touch $202.36 billion in 2021 from $122.45 billion in 2016, representing a compounded annual growth rate of 10.6%. The favourable trend in the space is likely to aid Proofpoint’s financial results.


Since the company continues to invest in sales and marketing, we expect this to remain a drag on the company’s bottom line in the near term. Intense competition and an uncertain macroeconomic environment add to its woes.

Bottom Line

Notably, this Zacks Rank #3 (Hold) company has shown an uptrend in terms of earnings as is evident from its average positive earnings surprise of 8.7% in the trailing four quarters.

We believe that the stock still has much potential, which essentially filters the negatives and focus on the positives which drive price.

Stocks to Consider

Few better-ranked stocks in the broader broader technology sector are Applied Materials, Inc. AMAT, Broadcom Limited AVGO and Applied Optoelectronics, Inc. AAOI, each sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Broadcom and Applied Optoelectronics have a long-term expected earnings growth rate of 16.6%, 13.6% and 18.7%, respectively.

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