tiprankstipranks
Cognyte Software Stock: June Swoon Could Lead to More Losses
Stock Analysis & Ideas

Cognyte Software Stock: June Swoon Could Lead to More Losses

Story Highlights

Brutal price action in Cognyte stock indicates deeply negative sentiment on Wall Street. Before you go bottom-fishing, though, be sure to check Cognyte’s lackluster financials and note the company’s lack of forward guidance.

Based in Israel, Cognyte Software (CGNT) provides investigative analytics software. I am neutral on the stock.

There are contrarian opportunities, and there are toxic stocks that are better left untouched. Which category does Cognyte Software stock fall into? On June 28, many traders evidently decided that the stock was a no-go, as Cognyte’s financial data seemed to come up short of Wall Street’s expectations.

This isn’t to suggest that Cognyte Software is a toxic company. In actuality, the company has a sizable market footprint in the investigative analytics domain, especially for a small company with a $316 million market cap. Besides, investigative analytics is an essential component of the broader cybersecurity market, so Cognyte stock could be a high-conviction holding someday.

For the time being, though, caution is advised when it comes to Cognyte Software stock. As the stock’s price action is undeniably bearish, the last thing you want to do is jump in front of a steamroller in hopes that it will turn around before you get run over.

Interestingly, on TipRanks, CGNT stock receives a Smart Score rating of 5 out of 10, indicating that the stock is likely to perform in line with the broader market.

A Very Bad Day in a Very Bad Year

Sorry to be the bearer of bad news, but anyone who held Cognyte Software stock prior to June 28 woke up that day to an awful surprise. Shockingly, the stock gapped down 27% and stayed significantly down throughout the trading session.

Making matters worse, Cognyte stock fell below the key $5 level. It’s a critical price level because some folks will informally call a stock a “penny stock” when it falls below $5. There’s nothing intrinsically wrong with penny stocks, but some investors choose to avoid them. Consequently, you might see stocks that recently broke below $5 continue to fall as traders steer clear of them.

To be honest, Cognyte Software’s shareholders have had an awful 2022 so far. Bear in mind that the stock started the year at around $15.50. It didn’t take long for the stock to slip below $10 into the single digits, and now it’s below $5. This begs the question: Is Cognyte doing so poorly as a company that the stock should fall so far, so fast?

At first glance, it would appear that Cognyte Software is firing on all cylinders. After all, the company has more than 1,000 government and enterprise customers in over 100 countries. Plus, after the infamous attack on the Colonial Pipeline, a company like Cognyte should be making money hand over fist – but we’ll address this in a moment.

At least, we can say that Cognyte Software has a robust partner program known as the ELITE Strategic Partner Program. Indeed, the company recently expanded this program, which could help Cognyte extend its reach into the global investigative analytics market.

Disappointing, Indeed

Make no mistake about it: Investing in small to mid-size companies can be a risky business. Even if you’re a cybersecurity aficionado and appreciate Cognyte Software’s vision for rapid expansion within this market, this doesn’t mean that you have to jump headfirst into the trade.

June 28’s massive share-price decline is a textbook example of what can happen to cheap stocks sometimes: They can get even cheaper when there’s disappointing news. In the case of Cognyte Software, the disappointing news came in the form of an earnings release for the first quarter of Fiscal Year 2023 (which ended on April 30 of this year).

“We are disappointed with our first-quarter results,” Cognyte Software CEO Elad Sharon acknowledged. When a company’s CEO says something like that, you know it’s not going to be a good day for the shareholders.

So, how bad were the Q1 FY2023 results? To start off, Cognyte generated GAAP-measured revenue totaling $86.4 million. Reportedly, this figure missed the analysts’ consensus estimate by 22.8%. Hence, we’re not off to a great start.

Now, for the bottom-line results – and don’t get your hopes up. Apparently, Cognyte Software earned 20 cents per share in the year-earlier quarter, and analysts anticipated that Cognyte would report Q1 FY2023 earnings of 12 cents per share. As it turned out, the actual result was not a profit but a loss of 79 cents per share. Yikes!

According to the company’s CEO, Cognyte Software’s quarterly results were “impacted by slow pipeline conversion and supply chain” – common complaints in 2022. Even worse, Sharon declined to provide forward fiscal guidance. This makes it difficult to assess whether Cognyte’s next quarterly earnings results might be a beat or a miss.

Wall Street’s Take

Turning to Wall Street, CGNT is a Moderate Buy based on two Buys and three Hold ratings. The average Cognyte Software price target is $9.67, implying 111.1% upside potential.

Sit Tight and Avoid Cognyte?

The 28.66% plunge in Cognyte Software stock might seem harsh, but it’s not necessarily an overreaction. The company’s recently reported financial data, plus Cognyte’s lack of forward guidance, provide ample ammo for the bears.

Since Cognyte Software stock could unexpectedly rebound after such heavy losses, short-selling the stock would be too risky now. Therefore, it’s probably best to keep a safe distance and pursue cybersecurity-market wealth elsewhere.

Disclosure

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles