Imperva: Damage Provides Opportunity

| About: Imperva (IMPV)

Summary

Imperva gets hit by typical weak guidance.

The stock normally takes a hit during the seasonally weak Q1 period that sets up an annual buying opportunity.

The recommendation is to wait for the current damage to subside before loading up on the stock in a few months.

Though Imperva (NYSE:IMPV) has shown no ability to accurately forecast future earnings, the stock is down over 25% now after a "technical" guide down for Q1. My previous warning highlighted how the stock typically takes a hit during the seasonally weak quarter so this decline is no surprise.

The question is how long one should wait before using this dip to purchase the stock. Investors need to consider whether guidance was all that weak and consider that the stock now trades at the 2015 lows before the stock doubled.

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Follow The Trend

Over the prior two years, Imperva saw big-time weakness during the first quarter of the year. With the stock riding high at the end of 2015, not chasing the stock was an obvious move. Possibly even worse is the lack of high-profile security breaches that drove demand in early 2015. The revenue pull forward is expected to impact growth in the short term.

The trend for the company though is to guide toward extremely low expectations. Over the last year, the company typically beat estimates by an average of over $0.10 per quarter.

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Source: Yahoo Finance

Imperva scared the market with Q1 guidance for a substantial loss of up to $0.29. The number is a sizable reduction from analyst estimates of $0.12, but the full-year outlook of at least $0.17 in earnings isn't that far off expectations, especially considering the company beat EPS estimates by a combined $0.54 during the four quarters of 2015.

The Setup

What the market is missing is that Imperva actually increased the revenue guidance for the year. Wall Street was only expecting $290 million for 2016 and the company guided to at least $302 million.

Maybe even more impressive is the mid-point on the full-year EPS is $0.20. Based on 2015, Imperva could quickly surpass the analyst expectations for earnings of $0.31 for the year by another $0.10-plus beat during Q1.

With a market value of only $1.3 billion and revenue that could easily top $300 million this year, Imperva trades at a reasonable PS multiple. Otherwise, the stock isn't priced for perfection anymore like the end of last year.

Takeaway

If one thinks cyber security breaches will return in a big way this year, Imperva provides an attractive opportunity to buy the recent dip. Based on the history of the last two years, the stock hits a buy point by early May and doesn't look back until year end. History doesn't always repeat, but the general guide on this stock is set in place.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.