Darktrace share price: how much upside is there?

Darktrace’s share price has benefitted from a renewed focus on cybersecurity following Russia’s invasion of Ukraine.  Solid revenue and positive forecasts have also helped the stock price, which had been on a downward trajectory towards the end of 2021.

On 23 September, Darktrace’s [DARK.L] shares hit an intraday high of 997p, but since the end of October they have experienced a sharp drop in value. Much of this was triggered by the end of a post-IPO lockup period which allowed early investors to take profits.

A second lockup period on over 85 million employee shares came up at the start of May. Darktrace expects that this will result in around 20 million shares being sold. And following positive third quarter results Darktrace’s management and employees sold £25m worth of company shares.

Yet Darktrace’s share price has gained some momentum in 2022 and with  cybersecurity spending forecast to dramatically increase, there could still be some upside left in the stock.

What’s happening with Darktrace’s share price?

Darktrace’s share price is up 11.53% over the past three months to close Friday 29 April at 434.30p. Over a one month time frame, shares in Darktrace are down 3.2%, having experienced a sharp drop on 14 April to 364.9p. However, since that point the stock has rebounded strongly and investors will be eyeing up a tilt at the stock’s year high of 557.66p, which was hit on 3 March.

How has Darktrace been performing?

In fiscal Q3 2022, Darktrace added 359 net new customers, bringing its customer base to 6,890, up 37.3% year-on-year.  Revenue for the quarter was $109.8m, up 50.1% year-on-year to bring the firm’s nine month revenue to $302.4m, up 51.5% year-on-year. Annualised Recurring Revenue (ARR) was $35.4m for the third quarter and $105.3m for the nine month period.

Darktrace increased its ARR growth target to between 40.0% and 41.5% (previously 38.5% to 40.0%) for the full year and now expects revenue growth of between 45.5% and 47.0% (previously 44.5% to 46.5%). These results came hot on the heels of Darktrace’s full year 2021 statement which revealed an operating profit of £8.6m for the second half of 2021, handily reversing the £4.9m loss from the same period the previous year.

Following the results, Jefferies issued Darktrace with a Buy rating. The investment bank has a 730p price target on the stock and noted that the company had ‘a very balanced quarter, with strong momentum’.

"We think this clearly highlights the operational leverage which is inherent in the business model. Darktrace remains one of our favoured names in the sector," wrote analysts at Jefferies.

Where next for Darktrace’s share price?

The Russian-Ukraine crisis has highlighted a need for cybersecurity and firms offering protection against state-backed hackers, such as Darktrace, could become increasingly important. Then there is the world of white collar work with companies increasing cybersecurity spend.

According to a report from Mordor Intelligence, the global cybersecurity market was valued at $132.94bn in 2021 and will grow at a CAGR of 14.1% between 2022 and 2027. Mordor points to a World Economic Forum survey that  shows 87% of executives polled are planning to improve their cyber resilience policies. This has been driven by digital transformation in the workplace triggered by the Covid-19 pandemic, with more businesses operating remotely and depending on cloud services.

Now could be a buying opportunity should Darktrace be able to capitalise on the growing demand for cybersecurity, especially given the falls since October. Although investors will have to decide if Darktrace’s valuation is still too far ahead of the fundamentals.

The 6 analysts offering 12-month price for Darktrace have a median price target of 813.65p, suggesting a 87.3% upside on Friday’s close, as reported by the Financial Times. The overall consensus recommendation is outperform, with one Buy, four Outperform, one Hold, and one Underperform rating.