Amid accelerated digital transformation, hybrid lifestyles, and a surging number of e-commerce platforms, the demand for internet security solutions to eliminate rising cyber threats, including ransomware, data breaches, Denial of Service (DoS) attacks, and other attack vectors, is increasing.
Moreover, the Russia-Ukraine war has increased the risk of cyberattacks on Western countries, thereby increasing opportunities for companies in this space. Furthermore, rising government funding for cybersecurity solutions to guard their confidential data and information should bolster the industry’s growth.
However, the macroeconomic headwinds, including interest rate hikes to fight high inflation and a potential recession, have caused a broad tech sell-off, affecting the software security stocks. And given the poor financials and weak growth attributes, some stocks are not poised to stage a rebound anytime soon.
We think software security stocks Ipsidy Inc. (AUID) and SentinelOne, Inc. (S) could be best avoided this month, given their bleak fundamentals.
Ipsidy Inc. (AUID)
AUID operates an Identity as a Service (IDaaS) platform that provides a suite of global secure, mobile, and biometric identity solutions. The company develops an IDaaS platform, enabling users to verify and authenticate their identities. It provides identity solutions, including VERIFIED, PROOF, AUTHENTIFID, and IDENTITY PORTAL. It also offers payment processing solutions.
On March 21, AUID closed on total financing of approximately $22,500,000. The financing raised approximately $9,200,000 through the issuance of senior secured convertible promissory notes, nearly $3,000,000 through the sale of shares of common stock, and $10,000,000 in borrowing capacity under an unsecured credit facility. This is expected to increase the company’s debt burden.
In the fiscal 2022 first quarter ended March 31, 2022, AUID’s operating expenses amounted to $5.87 million, up 111.6% year-over-year. Its loss from operations worsened 140.8% from the year-ago value to $5.27 million. Its adjusted EBITDA loss stood at $2.86 million, compared to a $1.25 million loss reported in the prior-year period.
Furthermore, the company’s net loss and net loss per share came in at $5.30 million and $0.22, widening 112.9% and 69.2%, respectively, year-over-year.
The stock has declined 83.3% year-to-date and 78.8% over the past year to close the last trading session at $2.39.
AUID's POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AUID has a grade of F for Value and Quality. It has a D grade for Momentum and Growth. Within the F-rated Software - Security industry, it is ranked #29 of 30 stocks. To see AUID's POWR Ratings for Stability and Sentiment, click here.
SentinelOne, Inc. (S)
S operates as a cybersecurity provider in the United States and internationally. The company’s Extended Detection and Response (XDR) data stack fuses together the data, access control, and integration planes of endpoint protection platform, endpoint detection and response, cloud workload protection platform, and IoT security into a centralized platform.
S' operating expenses increased 75.2% year-over-year to $141.41 million in the fiscal 2022 first quarter ended April 30, 2022. Its non-GAAP operating loss widened 20.9% year-over-year to $57.44 million. The company’s non-GAAP net loss came in at $56.98 million, worsening 17.4% from the prior-year period. Also, its non-GAAP net loss per share amounted to $0.21.
Analysts expect S' loss per share for the fiscal 2023 second quarter (ending July 2022) to come in at $0.25, worsening 26.6% from the same period in 2021. Also, the consensus loss per share estimate of $0.20 for the third quarter, ending October 2022, indicates a widening of 32.9% year-over-year. The company has missed the consensus EPS estimates in three of the trailing four quarters.
S’ shares have slumped 53.9% over the past nine months and 48.1% year-to-date to close the last trading session at $26.19.
S' POWR Ratings reflect its poor prospects. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
The stock has an F grade for Stability, Quality, and Value. Also, it has a grade of D for Momentum. It is ranked #29 of 29 stocks in the F-rated Software - Security industry. To see additional POWR Ratings (Growth and Sentiment) for S, click here.
AUID shares were trading at $2.32 per share on Friday morning, down $0.07 (-2.93%). Year-to-date, AUID has declined -83.46%, versus a -17.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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