The Darktrace IPO: should I buy at the current share price?

first_img Get the full details on this £5 stock now – while your report is free. The Darktrace (LSE:DARK) IPO saw shares of the cybersecurity firm priced at 250p. Then strong demand during conditional dealing drove the price to 350p. This morning, Darktrace shares hit the London Stock Exchange and currently trade at 344p, valuing the company at around £2.2bn.Cybersecurity is a growing market, and Darktrace has an apparently unique offering. Revenue is growing strongly, and there’s a path to profit. However, clouds are hanging over the IPO. Darktrace could well have been priced at closer to £4bn. But, the high-profile weakness of the Deliveroo IPO and links to Mike Lynch, the founder of Autonomy, and others embroiled in US fraud charges, may have contributed to a discounted IPO price.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Growing companySo what shape is the business in? Although Darktrace’s reported annual revenue growth is slowing, it was still high at 43% from 2019 to 2020. Customer numbers more than doubled, from 1,659 to 3,858, from 2018 to 2020, the average revenue per customer increased from $48k to $52k. It reported operating losses of nearly $25m in 2020, but losses have been shrinking as all recurring costs are falling as a percentage of revenue. If the trends continue, there’s a path to making an operating profit. Given that Darktrace has relatively modest financing costs, a net profit could follow soon after.Darktrace sees its total addressable market (TAM) at $40bn. Assuming that’s an accurate calculation, then the company has a small 0.5% market share. That would suggest ample room for continued revenue growth, particularly if the TAM grows as fast as the broader information security and risk management market. Gartner, a research and advisory firm, thinks the broader market will grow 8.2% per annum through 2024.Artificial intelligenceDarktrace’s product leverages machine learning to discover the normal digital behaviour of an organisation and thus detect, respond and investigate deviations from that behaviour that may represent a cyberthreat. By contrast, other defence solutions, like antivirus and firewalls, typically block and detect known threats. Darktrace appears to have a compelling offering.Source: company presentationDarktrace risksHowever, as I mentioned, the company faces potentially significant legal and reputational risks arising from its association with Mike Lynch. Mr Lynch founded Autonomy, which Hewlett-Packard bought in 2011. Mr Lynch founded Invoke Capital Partners with the Autonomy sale money, and Invoke was an early investor in Darktrace. Furthermore, Invoke and Mr Lynch provided managerial and technical support to Darktrace until fairly recently. Mr Lynch and others have been charged with fraud in the US relating to accounting irregularities at Autonomy, and extradition hearings are underway.There are no suggestions of accounting irregularities at Darktrace, nor any evidence of wrongdoing by its management. But Darktrace has been accused of using aggressive sales tactics like Autonomy was. Sales and marketing expenses account for 82% of operating costs, well above Avast and Norton’s (22% and 16%). The review website Glassdoor reports a 2.6 out of five satisfaction score for Darktrace sales staff.Of course, spending a lot on sales isn’t unusual for a young company trying to build a presence. And disgruntled workers aren’t unique to the firm. But investors might one day perceive the personnel links (Darktrace’s CEO worked at Autonomy and Invoke) and the apparent inheritance of Autonomy culture as problematic. That’s beyond Mr Lynch’s 20% stake in the Darktrace IPO. So until the fraud case is resolved, I won’t be buying the shares. Image source: Getty Images. FREE REPORT: Why this £5 stock could be set to surge The Darktrace IPO: should I buy at the current share price? Enter Your Email Address Are you on the lookout for UK growth stocks?If so, get this FREE no-strings report now.While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.And the performance of this company really is stunning.In 2019, it returned £150million to shareholders through buybacks and dividends.We believe its financial position is about as solid as anything we’ve seen.Since 2016, annual revenues increased 31%In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259Operating cash flow is up 47%. (Even its operating margins are rising every year!)Quite simply, we believe it’s a fantastic Foolish growth pick.What’s more, it deserves your attention today.So please don’t wait another moment. James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Avast Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.center_img I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Simply click below to discover how you can take advantage of this. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Our 6 ‘Best Buys Now’ Shares James J. McCombie | Thursday, 6th May, 2021 | More on: DARK See all posts by James J. McCombielast_img read more