Here's Why Holding Proofpoint Can Give Solid Returns In 2018

As the eventful 2017 comes to a close, we believe this is the right time to make your investment plans for the upcoming year.

A prudent investment decision involves buying stocks which have solid prospects and selling the ones 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 the performance of Proofpoint Inc. (NASDAQ:PFPT) , a stock with expected long-term earnings per share growth rate of 23.3% and Growth Style Score of A. Notably, it has returned approximately 27.5% this year, outperforming the industry’s gain of 23.1%, to which it belongs to.

We believe the stock has the potential to exceed expectations in the next year as well. The reasons behind our optimism include a healthy cyber-security market, benefits from increasing migration to Microsoft’s (NASDAQ:MSFT) Office 365 as well as acquisitions.

Let’s discuss them one by one.

Healthy Cybersecurity Market

We believe Proofpoint will continue to benefit from the increasing demand for cyber-security solutions, thanks to a number of cyber attacks which plagued the globe in 2017, including the two massive ransomware attacks — WannaCrypt or WannaCry in May and Petya in June — and one major data breach at Equifax (NYSE:EFX) which was reported in September.

All these have spurred the demand for security-related products among enterprises and governments across the world. Per a latest research report from Gartner (NYSE:IT) , worldwide cybersecurity spending is likely reach $96.3 billion in 2018 — marking 8% growth from the 2017 expected level of $89 billion. Another market research firm, Markets and Markets, in its July 2017 report, stated that worldwide cybersecurity spending will likely reach $137.85 billion in 2017 and $231.94 billion by 2022.

We believe the upswing in the overall cyber-security market bodes well for Proofpoint as it will bring in new customers, thereby boosting its top-line performance.

Increased Migration to Office 365

As more and more enterprises are migrating to cloud, demand for better cyber-security measures has been on the rise. For the last few quarters, Proofpoint has been witnessing strong demand for its cyber-security suites from enterprises which are transitioning to cloud, particularly to Office 365.

Per the company, customers are looking for additional security capabilities that “complement and enhance the baseline solutions provided by Microsoft.” During the first three quarters of 2017, a number of enterprises, which migrated to Office 365, bought the company’s security suits that also included a significant number of Fortune 500 enterprises.

We expect this bullish momentum to continue into 2018 as well, thereby boosting Proofpoint’s Protection and Advanced Threat segment’s top-line performance.

Acquisitions to Drive Revenues

Proofpoint has made strategic acquisitions to expedite growth. In 2017, the company made two important buyouts, Cloudmark, which is specialized in providing security protection for messaging services, and Weblife.io, a leader in browser isolation solutions. Last year also the company had acquired two businesses — FireLayers and the Email Fraud Protection (EFP) business unit from Return Path.

The aforementioned buyouts have not only expanded Proofpoint’s product portfolio but also its customer and revenue base as well. We believe the company will continue with its strategy of growing through acquisitions which will help bolster its revenues.

Bottom Line

Notably, this Zacks Rank #3 (Hold) company has displayed an uptrend in terms of earnings as evident from its average positive earnings surprise of 35.4% in the trailing four quarters.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We believe the stock still has much potential, which essentially filters the negatives, and focuses on the positives which drive share prices.

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