Assessing CyberArk Software (CYBR) Valuation After Strong Long Term Returns And A Rich P/S Multiple

Event overview and initial context

CyberArk Software (CYBR) has been drawing fresh attention after recent trading left the stock with a year-to-date gain alongside a negative move over the past 3 months, prompting investors to reassess its identity security profile.

See our latest analysis for CyberArk Software.

While CyberArk Software’s recent 90 day share price return of 10.85% and 7 day return of 3.01% both point to fading short term momentum, its 1 year and multi year total shareholder returns remain much stronger, suggesting that investors are still pricing in meaningful identity security potential despite recent volatility.

If CyberArk’s recent swings have you thinking about other names in the sector, it could be a good moment to scan high growth tech and AI stocks for more ideas in software and AI driven security.

So with CyberArk’s strong 1 year and multi year returns, its recent 90 day pullback, and a small intrinsic discount of 1.54%, should you view current levels as a fresh entry point or assume the market already prices in future growth?

Price-to-Sales of 17.3x: Is it justified?

Catching up the recent move in CyberArk’s share price with the valuation data, the current P/S of 17.3x sits well above peer and fair value benchmarks.

P/S compares the company’s market value to its revenue, which can be a useful yardstick for a software name like CyberArk that is still loss making but growing its top line. A higher P/S often signals that investors are willing to pay more for each dollar of sales, which tends to reflect expectations around future margins and growth rather than current profits.

For CyberArk, the P/S of 17.3x stands at more than double the US Software industry average of 4.7x and is also above the peer average of 8.3x. This points to the market assigning a clear premium to its identity security franchise. Against the estimated fair P/S of 8.9x, the current multiple is again much richer, suggesting that if valuations were to converge toward that fair ratio, there could be room for the multiple to compress from today’s level.

Explore the SWS fair ratio for CyberArk Software

Result: Price-to-Sales of 17.3x (OVERVALUED)

However, the rich 17.3x P/S multiple, combined with CyberArk’s US$226.9m net loss, means any slowdown in its 14.54% revenue growth could quickly test investor conviction.

Find out about the key risks to this CyberArk Software narrative.

Another view on value

While the 17.3x P/S suggests CyberArk is expensive versus peers and its fair ratio, our DCF model points in a slightly different direction. The shares are trading about 1.5% below an estimated fair value of US$453.79. That raises a simple question: which signal do you trust more?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CyberArk Software for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 874 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own CyberArk Software Narrative

If you see the numbers differently or prefer to work through the assumptions yourself, you can build a personalised CyberArk view in just a few minutes, starting with Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding CyberArk Software.

Looking for more investment ideas?

If CyberArk has sparked your interest, do not stop here. Broaden your watchlist with other focused ideas that could suit different parts of your portfolio.

• Spot potential early stage opportunities by checking out these 3534 penny stocks with strong financials that already show stronger financial underpinnings than many small caps.
• Position yourself closer to long term tech themes by reviewing these 23 AI penny stocks that tie artificial intelligence to practical business models.
• Keep an eye on value focused opportunities by scanning these 13 dividend stocks with yields > 3% that may offer higher income streams than broad market indices.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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