Symantec's stock looks like a value trap for the moment

Symantec (SYMC) dropped more than 12% on Friday, after missing revenue and billing estimates for the March quarter. Rick Hill, a board member and former CEO of chipset manufacturer Novellus Systems, will assume the role of interim CEO while Symantec is looking to replace its replacement.

It's hard to give a positive picture of the numbers that Symantec just shared. Non-GAAP sales decreased by 2% per year in March. The company noted on the call of its results that software licenses and hardware sales were slightly down. Corporate security billings decreased by 24 percent to $ 712 million, while those related to "consumer cyber security" related to Symantec's Norton Antivirus Software unit and unit LifeLock's identity protection services, fell 6% to $ 620 million.

And halfway ahead of Symantec's forecasting ranges, the company expects its revenue to grow only 2% in June and 1% in fiscal year 2020.

In comparison, in March, after a positive start to the year for many security industry players, IDC predicted that global IT security spending would rise by 9.4 percent this year to 103 percent. , $ 1 billion. IDC also expects IT security spending to increase at a compound annual rate of 9.2% from 2018 to 2022.

As I mentioned a year ago, after the fall of Symantec as a result of a disappointing report from March and the news of an audit committee investigation (completed in September), the main challenges of society seem very profound. The company is losing shares in many companies as it deals with a long list of starving rivals, many of which focus on a smaller set of products and services and demonstrate better sales performance. This list of rivals covers a range of well-funded startups and pure security companies listed on the stock exchange such as Zscaler (ZS), Palo Alto Networks (PANW) and Proofpoint (PFPT), up to giant security units from the computer such as Cisco. Systems (CSCO) and IBM (IBM).

At first glance, the multiples of Symantec seem reasonable compared to those of many peers: the value of the company (market capitalization plus net debt) equals about 14 times the free cash flow of the year 2020, and less than 12 times expected 2021 FCF exercise.

But there are clearly good reasons why Symantec benefits from such a reduction in value. Given that society has done little to dispel major concerns, it is not surprising that its estimates are lower.

Therefore, as long as Symantec does not show any warning signs to stop its recent stock losses, its stock will look like a value trap.