Clinton Email Debacle Highlights Cybersecurity and Encryption Industry Potential

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If there’s one thing Hillary Clinton has taught us about communication over the past 12 months, it’s that encryption is very important. The furor surrounding her seeming oversight (more likely a way to dodge information requests) when it comes to using personal unsecured lines to discuss governmental matters is only going to become more of a contentious issue when she and Donald Trump officially go head to head.

The attention can only mean one thing for cybersecurity companies: positive sentiment. Here are two companies that are going to get torrents of positive press as election season heats up and two of the most divisive candidates in election history go at each other’s throats over the issue.

Qualys

Qualys Inc. (NASDAQ: QLYS) is a California-based cloud security company. It operates through something called the QualysGuard Cloud Platform, which is a type of full suite software program that allows companies and individuals to evaluate and fix their security systems. Valued at $1.15 billion, the company is up more than 114% on its 2012 IPO price of a $12 a share. One look at last year’s action illustrates some of what news media driven influence can do. Just as the independent reviews hit press discussing Clinton’s lack of encryption on her emails, which is something that Qualys specializes in, the company’s shares soared. As news attention died off, so did Qualys shares. From the second quarter 2015 highs of $54 a share, Qualys now trades at $32.

Qualys just beat out on its estimates, reporting earnings of $0.13 per share, versus a consensus forecast of $0.08 per share. Its revenues of $46.2 million were up on consensus estimates of $45 million. Cash on hand looks pretty strong, reported at $112.4 million as of March.

FireEye

FireEye Inc. (NASDAQ: FEYE), also based in California, is more than twice the size of Qualys at nearly $3 billion. The company pulled in just shy of $168 million in revenues during the first quarter of 2016, and it recorded a gross profit of $96 million. Unlike Qualys, FireEye recorded a net loss on the quarter and has yet to pull in a positive bottom line. Cash on hand is strong though, reported at $175 million and backed up by a further $746 million worth of short-term investments.

This time last year, FireEye shares were selling for more than $54. They can be picked up now for less than $17, a 70% discount in less than 12 months.

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Is this cheap, or is FireEye set for further losses? Seemingly out of sync with the fundamental focus on cybersecurity right now, the sector as a whole has seen a sell-off over the past year. Cybersecurity leaders have put this down to a lack of funding. Going forward however, this is bound to change. Cybersecurity is becoming a huge part of online operations across all industries, whether the industries in question have realized it yet or not. As this fact becomes more and more apparent, capital should flow toward the largest companies in the sector. FireEye is a prime target, and so we should see a turnaround in its fortunes toward the second half of the year as Clinton and Trump unintentionally direct more attention to it.