Wait Until After the Upcoming Q3 Report Before Deciding on McAfee Stock

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Trading at a low valuation, especially for a growing company in the tech sector, McAfee (NYSE:MCFE) has some significant, positive attributes. Nonetheless, I advise investors to wait until after the company reports its third-quarter results before buying MCFE stock.

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McAfee has outstanding products, a high number of customers, a strong leadership team and reasonable growth. Moreover, the overall demand for cybersecurity is certainly increasing. And although McAfee’s financial results have not been strong in recent years, I believe that it may do better now that it has become an independent, publicly traded company for the first time in many years.

According to a chart provided by McAfee, Gartner, a very well-regarded independent tech research firm, rates McAfee as the top overall performer in the cloud access security broker sector.

Gartner explained that these brokers are critical parts of cloud security strategies that assist risk and security management professionals identify and protect sensitive information.

Gartner calls McAfee a leader in the sector, lauding McAfee’s cloud security posture management (CSPM) as better than some companies that specialize in that area.

Gartner does warns that McAfee’s user behavior analytics system is not as robust as those of some of its peers, while it’s regarded as a security generalist that “may struggle with perception issues, especially among organizations adopting a cloud-first strategy.”

Still, overall, Gartner regards McAfee quite favorably. Likewise, most of the reviews by McAfee’s customers on Gartner’s website were upbeat.

A Closer Look at MCFE Stock

McAfee’s customers who reviewed the IT security company on Gartner’s website gave it an average rating of 4.5 out of five stars. About 93% of the reviewers gave McAfee a four-star or five-star rating.

One reviewer wrote, “Overall, the McAfee solution is well thought out, designed, and effective. Where endpoint security is concerned their accuracy and wide range of configuration and detection methods and options are second to none.”

Another stated that McAfee “has solved our problem of data insecurity. Now I can easily upload the documents and files because I am no more worried about junk files and data corruption. I will appreciate how fast it works whenever I have to scan…particular documents.”

In 2019, McAfee’s sales rose 9% to $2.63 billion, and its operating profit came in at $126 million. Further, McAfee has reported that it works with all major cloud providers.

In the first half of this year, its net income came in at $31 million while its “gross profit has been steadily rising.”  I think this information indicates that the company has a fairly large, growing  customer base.

A Strong Leadership Team

Peter Leav became CEO of McAfee in February. From December 2016 to April 2019, Leav was CEO of BMC Software, which provides multiple types of software and services, including “adaptive cybersecurity.” BMC was publicly traded before going private in 2013.  From Dec. 2013 to Sept. 2016, he was CEO of Polycom, a maker of video-conferencing solutions.  Polycom was acquired by Plantronics (NYSE:PLT) last year.

In 2019, Rajiv Gupta, the general manager of McAfee’s cloud security unit, received the  Next Gen Security Expert of the Year award from Cyber Defense Magazine at the prestigious RSA Conference.

Before joining McAfee in 2018, Gupta was the founder and CEO of cloud access security broker Skyhigh Networks, which was rapidly expanding. Gupta, who has more than 20 years of experience in the industry developed a cloud security system for McAfee.

Between 2010 and its recent IPO, McAfee was either owned by Intel (NYSE:INTC) or private equity firm TPG. While it was under the Intel umbrella, it likely got lost in the huge chip maker and probably wasn’t a high priority of Intel’s management, while McAfee’s leaders weren’t tremendously incentivized to grow its business.

As for TPG, private equity firms famously focus primarily on cost-cutting. Now that McAfee is on its own and its executives are hugely incentivized to boost the business and MCFE stock, the company should perform much better.

The Bottom Line on MCFE Stock

McAfee’s trailing price-sales ratio is only one. That’s an extremely low valuation for a leading, growing IT security company.

Still, the company is facing a meaningful amount of competition, and I would advise investors to wait until after it reports its Q3 results on Nov. 19 before buying the shares. By waiting until then, they will be able to ensure that McAfee is still growing and on the right track before taking a position in the name.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.