'Hard to Ignore': Jefferies says this cybersecurity stock could double after 75% rise in the past year

Published Tue, Apr 16 20247:52 PM EDT

After two consecutive dreadful years of returns, investment bank Jefferies is forecasting a rebound in the share price of Darktrace , a British cybersecurity company. The turnaround already appears to be underway, as shares have risen by 75% to 446 pence over the past year and more than doubled since hitting an all-time low in early 2023. U.K. shares are generally priced in pence, with 100 pence equal to one British pound ($1.25). The London-listed stock is also traded in the U.S. over the counter. "Darktrace always framed fiscal year 2024 as a year of two halves, with stabilisation in the first half and a re-acceleration in the second half," Jefferies analysts led by Charles Brennan said in an April 11 note to clients titled "Acceleration Is Hard to Ignore." "With this in mind, a third-quarter trading update demonstrates the planned acceleration is happening faster than expected, driving yet more fiscal year 2024 guidance upgrades," the analysts added. DARK-GB 1Y line The cybersecurity company reported third-quarter results on April 11 that exceeded expectations. Net annualized recurring revenue — a key metric for the company that investors watch — grew by 6% to $29 million, a significant improvement in momentum from previous quarters. Revenue also grew by 26% for the quarter, with the churn rate modestly improving, according to the company. Following the better-than-expected results, Jefferies raised its price target for Darktrace to 890 pence from 550 pence, reiterating its "buy" rating. The investment bank believes that as the business accelerates, the valuation gap between Darktrace and its peers, such as CrowdStrike , Okta and Zscaler , will continue to narrow. Darktrace operates in the rapidly growing cybersecurity sector, which Jefferies forecasts will grow 9% annually. Jefferies believes that Darktrace's technology and "growth-first" model will enable the company to gain market share and "deliver superior growth in the medium term." The consensus price target of analysts polled by FactSet points to a 24.4% upside potential for the stock. Brennan's price target is the biggest among all analysts covering the stock. The company was the target of a short-seller report last year . It appointed auditing firm EY to review its "key financial processes and controls" in a bid to soothe investor fears.