I’ve been watching Darktrace (LSE: DARK) since its shares soared to dizzying heights in 2021 after one of the hottest IPOs in years. At its peak, the Darktrace share price hit 1,003p. But things quickly turned to disaster, and the shares had fallen off a cliff by the end of the year.
The price is still up 40% from flotation, mind. That’s not as good as the 300% gains at the peak, but 40% in less than a year is otherwise a cracking return. And it’s good to see things picking up again, as the Darktrace share price gained 5% during morning trading Wednesday. So what’s happening? And am I looking at a new opportunity that I missed back at IPO time?
The latest uptick comes in response to news of a new acquisition. Darktrace, which bills itself as “a global leader in cyber security AI,” has bought Cybersprint, which it describes as “an attack surface management company that provides continuous, real-time insights from an outside-in perspective to eliminate blind spots and detect risks.“
What was that again?
I know what each of those words means individually. But strung together like that, all I can see is marketing. And I have a computer technology background. Still, the €47.5m price tag does bring it one concrete thing that I understand, in the form of an additional R&D centre in The Hague.
Chief executive Poppy Gustafsson also points out that “bringing inside-out and outside-in visibility together is critical.” And you can’t argue with that. Or, in my case, understand it. But putting aside the jargon, Darktrace is in a technology sector that could potentially be very lucrative.
Darktrace share price crash
To decide whether to buy at today’s price, I need to think about why things went so badly wrong last year. My colleague at The Motley Fool, Jon Smith, pretty much nailed that. The problems were twofold. One is that November marked the end of an initial lock-in period for early-stage investors. And with the Darktrace share price having soared so high, it’s hardly surprising that a lot of them wanted to pocket their profits.
A couple of key brokers were bearish on the stock too, still considering it overvalued in recent months. They also criticised Darktrace as having style over substance. I am a big believer in investing in companies I understand, with tangible products and services, and ideally already generating profits. Profits are not in the picture here yet, and I’m not seeing a great deal of tangibility at this stage.
Industry could be very big
But against that, I really do think the profits from advanced cybersecurity technology could be potentially massive. Darktrace looks to be one of the very few companies making significant inroads into the market. And the company is attracting definite interest from potential customers, who understand the technology better than I do.
One problem is that I don’t really know what might be a good entry level for the Darktrace share price. But I am still tempted to invest a small amount, because of the potential for the business. Not a retirement savings chunk, but maybe a bit of play money.
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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