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Darktrace emerging from a dark place as share price rallies from post-IPO low

09:34, 9 August 2022

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  • UK100
    UK 100
    6984.6 USD
    -78.4 -1.110%

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Darktrace logo on screen. Photo: Shutterstock
Focus on cyber security has increased as a result of Russia tensions with the West. Photo: Shutterstock

Darktrace (DARK) is a stock that is understandably registering on investors’ radar right now.

There are always winners and losers when geopolitical hostilities escalate - and Cambridge, UK-based cyber defence specialist Darktrace would seem to be one of the obvious winners.  

Shares have rallied more than 30% in the past month as tensions between Russia and the West worsen.

Certainly, there is no shortage of positive news coming out of Darktrace – three weeks ago it raised its full-year profit forecast in a trading statement.  

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Darktrace (DARK) share price chart

Darktrace's July trading statement

Darktrace revealed it expected revenue for full-year 2022 of at least $417m, reflecting year-over-year growth of approximately 48%.

It also expects that gross margin for full-year 2022 will have remained in the range of recent reported periods.

Its preliminary view is that adjusted earnings margin for the year should be no less than 19.5% - beating the high end of its previous guidance range of 15% to 17%.

In the late-July update, Poppy Gustafsson  CEO and founder of Darktrace, said: "We are delighted to report strong operating and financial performance for full-year 2022, where we saw demand for our products continuing to grow as organisations seek to protect themselves from growing cyber threats.

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She added: “We expect this business momentum to continue into full- year 2023 as against a turbulent geopolitical background, it’s no surprise that long-term cyber risk is an even higher priority for Chief Information and Security Officers and senior executives.”

Darktrace - attractive valuation?

But still the shares linger below its post-IPO high and below many City price targets. Is it a buy, or sell the hump play?

Currently around the 381.9p level; Marketbeat shows a consensus analyst price rating of 466.5p – so potentially a decent amount of upside still expected.

Simply Wall Street forecasts strong earnings growth and points to Darktrace trading at 65.1% below its estimate of fair value.

But brokers are not of one mind when it comes to the cyber security specialist. Marketbeat shows that of four analysts canvassed, one rates Darktrace a ‘buy’ one a ‘hold’ and two a ‘sell’. The consensus rating based on this is ‘hold’.

Gustafsson’s belief that the ‘turbulent geopolitical background’ has and will continue to provide momentum for Darktrace business no doubt has resonance.

The question for investors is whether the clever money has already been made and whether now is a better exit rather than entry point?

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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