Imperva Inc (NASDAQ:IMPV), is a USD$1.45B small-cap, which operates in the software industry based in United States. Whether it’s the next big thing in tech such as artificial intelligence and robotics, or an alliance with a partner in another industry, for example healthcare or manufacturing, tech companies have plenty of opportunities for their companies to thrive. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 13.84% in the upcoming year , and an enormous growth of 55.17% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the tech sector right now. Below, I will examine the sector growth prospects, as well as evaluate whether IMPV is lagging or leading its competitors in the industry. View our latest analysis for Imperva
What’s the catalyst for IMPV’s sector growth?
US-based mega-competitors, such as Alphabet, Apple and Facebook, have been and appears to continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry saw growth in the teens, beating the US market growth of 10.30%. IMPV lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook doesn’t seem to be much better given that analysts are forecasting continued unprofitability going forward. This lack of growth means IMPV may be trading cheaper than its peers.
Is IMPV and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 43x, above the broader US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 12.86% compared to the market’s 10.06%, which may be indicative of past tailwinds. Since IMPV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge IMPV’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? IMPV’s uncertain outlook is a negative for shareholders, with the prospect of negative earnings persisting into the future. If your view of the industry outlook has changed since you bought, now may be a good time to revisit your initial investment thesis. Also, if you’re relatively concentrated in tech, you may want to value IMPV based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If IMPV has been on your watchlist for a while, now may not be the time to enter into the stock given its negative future prospect. However, before you make a decision on the stock, I suggest you look at IMPV’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Imperva’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other tech stocks instead? Use our free playform to see my list of over 1000 other tech companies trading on the market.