The Darktrace share price just collapsed! Should I load up?

The Darktrace share price dropped 15% on Wednesday morning after a senior director of the cyber security specialist was linked to a legal row.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Darktrace (LSE:DARK) shares plummeted on Wednesday morning. The fall followed a report that named a Darktrace executive in a legal row concerning Autonomy’s 2011 sale to Hewlett Packard. The stock is now trading near its lowest ever levels. So, maybe it’s time to load up?

What’s behind today’s fall?

The Telegraph reported on Tuesday evening that a current Darktrace executive has been named in a judgement concerning malpractice in the sale of Autonomy to Hewlett Packard in 2011. The judgement — handed down on Tuesday — found that Autonomy’s central management had pulled accounting “levers” to misrepresent how well the Cambridge-based business was doing ahead of its sale.

Justice Robert Hildyard highlighted Nicole Eagan, then Autonomy’s chief marketing officer, as “part of a clique responsible with the defendants of the operation of the impugned levels”. Eagan left Autonomy to set up Darktrace with a number of other tech experts. He served as chief executive until 2020, before moving to become Darktrace’s chief strategy and AI officer.

The judgement also accuses Mike Lynch, who founded Autonomy and served as an advisor to Darktrace until earlier this year. The judge accused Lynch of over-inflating the firm’s value, and he now faces a civil case. The British entrepreneur denies all claims made against him.

Autonomy was bought by HP for $11.7bn. However, one year later, the US tech giant wrote down the value of the business by $8.8bn. It claimed the selling price for the business had been massively over-inflated.

What does this mean for Darktrace?

In theory all this has little impact on Darktrace. However, investors will be concerned that a top executive may have been involved in malpractice that saw a company’s valuation distorted. This may compound worries that already existed about Darktrace’s share price. The stock has jumped up and down since its IPO with investors unsure of its real value.

Should I buy Darktrace?

Recent updates from and about Darktrace have been rather positive. For a start, in April, the AI firm increased its annual revenue guidance after adding 359 net new customers in the third quarter. Darktrace said it added $35.4m of annual recurring revenue (ARR) in Q3 and $105.3m in the nine months to the end of March. These figures include the acquisition of Cybersprint in March.

This was followed by a positive broker appraisal. Analysts at Jefferies issued the cyber-defence company with a ‘buy’ rating, noting the group’s “positive” third-quarter trading statement. Jefferies has a 730p target for the stock, more than double today’s price.

However, there are concerns about the path to sustainable profitable growth. Shortly before the Q3 update, JPMorgan Cazenove raised noted that high competition, relatively low platform lock-in and customer stickiness could hurt long-term profitability.

Despite this, and the other concerns, I see today’s fall as a good opportunity to buy. There’s a considerable focus on cyber-security following Russia’s invasion of Ukraine and the increasing tensions between Moscow and the West. I think the prospects are strong for Darktrace and I’m looking to add it to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox 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.

More on Investing Articles

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »