So you were long FEYE, what now?

There’s no easy answers for longs right now. FEYE stock has bounced $.60 off the $24.4 AH (all-time) low, but the next few sessions will be important ones to watch.

A short term bounce is possible but unlikely to last. Their growth rates are coming down and for the current shareholder base, that’s the most important thing. (Their burn rate is so high, P/E conversations are not worth discussing.)

Where’s the bottom? Firewall competitor Fortinet (FTNT), which recently blew up for the same reasons, currently sports a 6x multiple, but they have a much broader and compliance-mandated product offering. 6x sales would see FEYE hit $22.5. Personally, I don’t think we’ve seen the lows yet, but feet to the fire, dip buyers should start looking for signs of a bottom and begin accumulating somewhere between here and $20.

As for being acquired, who knows. At any point the board could switch gears and agree to sell, which puts 8-10x sales back on the table as a “technology acquisition”. (10x-ish is the high-end M&A comparable that Cisco used for Sourcefire.) Rumor has it they got a $70 offer from MSFT last quarter, but who knows if its true. I think $45 is more realistic. They’ve likely had a number of interested parties poking around, but that fateful secondary from 2014 at much, much higher prices probably hamstrung their ability to say yes. That, and perhaps hubris.

If you’re in FEYE for the long haul, keep an eye on endpoint traction. I haven’t seen the transcript of the con call yet, but that’s the make-or-break product going forward. If they’re able to displace large AV deployments, then they’ll have a top 2 compliance-mandated security budget line item, combined with the rest of their offerings, that should equate to an unassailable position within the enterprise. Remember, DeWalt comes from McAfee, he knows the AV space and founder Ashar Aziz was rumored to have been personally leading the development group to rebuild the clunky Mandiant client. (But as recently as July or so they were still looking to hire a product manager. If you understand the product development cycle, that’s a yellow card, as that’s in reverse order of how things normally go.)

The other thing to watch for is a shareholder revolt, perhaps demanding Kevin Mandia replace Dave DeWalt at CEO. How the stock responds to that little bit of fun, should it occur, will yield the clues you’re looking for.

Good luck!