Should I buy Darktrace shares for 2023?

Darktrace (LSE: DARK) shares have seen weakness recently. Less than six months ago, they were trading above 500p. Today, however, it can be snapped up for around 260p.

Is now a good time to buy cybersecurity stocks for my portfolio? Let’s have a look.

$2trn market opportunity

One thing I like about Darktrace from an investment perspective is that it operates in a high-growth industry. According to McKinsey, the damage from cyberattacks will be around $10.5trn per year by 2025 – a 300% increase from the 2015 level.

McKinsey analysts believe that the total addressable market for cybersecurity companies could reach $2trn. So companies in this space are going to have some big tailwinds in the coming year.

Cyber ​​attacks are on the rise, causing trillions of dollars in damage every year. The cybersecurity industry has an opportunity to step up and seize the opportunity.

McKinsey

Another thing I like about the company is that it is now profitable. For the year ended June 30, analysts expect the group to post a net profit of $29.3m. For next year, they expect a net profit of $45.7m.

Consistent profits will allow investors like me to value the company more accurately. You should also reduce the volatility of the stock price (the stock is extremely volatile since the market in 2021).

sky high valuation

But on the downside, Darktrace stock is still very expensive. Earnings per share (EPS) is expected to come in at $3.88 this financial year. That puts the stock at an expected price-to-earnings (P/E) ratio of around 83 right now.

The problem with this high value is that it leaves no room for error. It was shared earlier this month.

On January 11, Darktrace cut its revenue growth guidance for this financial year to between 29% and 31.5%, down from its previous growth forecast of 31-34%. This development – which the company blamed on macroeconomic forces – sent the stock down almost 20% to a record.

The current macroeconomic environment makes it challenging to win new customers, with prospects more reluctant to conduct product trials.

Darktrace CFO Cathy Graham

Another issue to note here is that the broker has cut the price target for the stock (significantly). For example, on January 12, analysts at Needham cut their target price to 330p from 622p. This negative brokerage activity could limit stock prices in the near term.

Finally, it should be pointed out that Darktrace operates in a competitive industry. Competitors included The Palo Alto Network, CrowdStrikeand Fortinet. It will have its work cut out to compete with this type of player.

I’m moving now

All things considered, I’m happy to leave Darktrace stock on my watchlist for now. The company seems to have potential. But right now, the stock looks a bit risky to me.