As IPOs go, the Darktrace (LSE: DARK) one in May can only be described so far as a roaring success. From an offer at 250p, the Darktrace share price has soared to 810p. Investors who went in at the start have more than trebled their money in just five months.
That’s very far from the way UK flotations, in my experience, seem to go most of the time. The Aston Martin Lagonda IPO flopped the hardest of any in recent years. But we’ve seen plenty more that have not brought in the profits for early investors.
Is it too late to get in now? Well, in the past week, the Darktrace share price has been falling back. Reaching 1,003p at their peak, Darktrace shares were showing a four-bagger at that point. But since then, the price has fallen back 20%. And then over the past couple of days, it appears to have stabilised.
So is this a renewed buying opportunity for me now, having missed out on what is starting to look like the IPO of the year?
I don’t think it’s a good idea to look at Darktrace like that. No, I’d prefer to examine the business and try to get a feel for its valuation. And then I’ll consider the current share price and decide whether to buy. The share price history over the past few months really should not mean anything in my deliberations.
Strong revenue growth
Darktrace, which bills itself as a global leader in cybersecurity AI, released full-year results on 15 September. And they looked pretty good to me. Revenue climbed by 41.3% over the previous year, to $281m. But the company faced a number of one-off costs related to its IPO. And there were significant finance costs too.
Though revenue is climbing strongly, Darktrace still recorded an operating loss of $38.5m. That’s 55% higher than in 2020. On this set of figures, I find it pretty much impossible to work out any kind of valuation for the Darktrace share price. Underlying figures appear good enough. But at this stage, I have no clue as to what levels of operating profit will eventually be sustainable.
What of the future, then? Chief executive Poppy Gustafsson said: “As the adoption of Self-Learning AI accelerates globally, we are also excited to be continually pushing the boundaries of innovation, extending the reach of our AI technology to new applications and use cases“.
Darktrace share price future?
For its 2022 outlook, the company expects to see revenue growth in the range of 35%–37%. That’s an improvement on previous estimates of 29%–32%. Darktrace has also upped its EBITDA margin expectations, from a previous range of 1%–4% to 2%–5%. But we are likely to see statutory losses for some time to come, as the company will surely need to keep investing heavily in research and development.
Right now, we are very much still looking at a ‘jam tomorrow’ investment. And I do think the Darktrace share price is one with a strong chance of strong gains. I’m tempted, but the risks are huge. I’m going to play safe and just keep watching.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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