Cybersecurity Drama Showcases an Opportunity in the Upwards Base Consolidation Screener

It’s an issue that just won’t go away. Late last week, cybersecurity specialist CrowdStrike (CRWD) suffered an ignominious outage due to a bug in a software update. The crash impacted millions of Windows-integrated devices worldwide, leading to temporarily halted operations in numerous industries, including government agencies, financial institutions and airlines.

To be fair, CrowdStrike got in front of the problem quickly, undoing the software update and providing its enterprise-level clients with a manual workaround to correct affected devices. Still, the company warned that the restorative process may be a lengthy one for certain systems. Not surprisingly, CRWD stock has been cratering since the incident.

In the past five sessions, shares have lost almost 26% of equity value. Over the trailing month, they’re below parity to the tune of more than 33%. Given the midweek session’s 4% loss, it’s not clear when CRWD stock will regain its credibility.

Still, in a roundabout manner, CrowdStrike’s drama may present an opportunity for cybersecurity firms that, relatively speaking, have kept their noses clean. One possible idea to look into is Gen Digital (GEN).

While both Gen Digital and CrowdStrike operate in the broader cybersecurity realm, the latter is focused on enterprise-level solutions, emphasizing endpoint protection, threat intelligence and threat elimination. The former entity focuses largely on consumer solutions, such as antivirus software, identity theft protection and privacy services.

Essentially, the uproar in the cybersecurity front offers everyday consumers a reminder about the criticality of digital protection services.

GEN Stock May Break Free From Consolidation

As I’ve been discussing over the last several weeks, Barchart offers a range of stock screeners that help facilitate a more objective framework in the field of technical analysis. Generally, the discipline has become almost like a Rorschach test, with analysts seeing a range of patterns, cycles and what have you. The beauty of Barchart screeners is that they provide quantitative signals.

Simply stated, in order for a Barchart screener to publicly identify a possible opportunity, the asset in question must meet a series of criteria. Some of these screeners feature several qualifying factors, all of which have to be met in order to flash a green light. Such a protocol helps eliminate a lot of white noise, allowing retail investors to concentrate on only the most promising ideas.

One intriguing tool that investors should learn about is called Upwards Base Consolidation. As Barchart puts it, these assets exhibit strong upward trends but are currently consolidating near market tops. The algorithm undergirding this screener identifies such congestions that are occurring in uptrends. In so doing, Barchart aims to offer ideas that could break out of their consolidation pattern.

A possible upside candidate is GEN stock. While shares have encountered some turbulence in the past five sessions – losing 2% during the period – in the trailing month, they gained over 4%. Since the beginning of the year, Gen Digital popped up roughly 11%.

Now, not all corrective cycles are built the same. While GEN stock has encountered an unfortunate red wave, Wednesday’s total price action stayed above its 20-day exponential moving average. And that means the bears couldn’t get the security anywhere close to its 50-day moving average.

What’s more, GEN stock (at $25.20 per Wednesday’s close) stands well above its 200 DMA ($21.85). Based on recent price action, it seems doubtful that shares will fall that much further. As such, the more GEN lingers sideways, the more that might encourage the bulls to send shares decisively higher.

Financial Projections Bode Well For Gen Digital

Another element that can help make GEN stock an attractive buy is the current valuation combined with analysts’ projections. Right now, shares trade hands at 4.25X trailing-year sales. That’s a bit high compared to the underlying infrastructure software sector, which runs an average multiple of 3.94X. Notably, between the first quarter of 2023 to Q1 2024, the average metric sat at 3.54X.

That said, analysts believe that by the end of the current fiscal year, revenue may land at $3.91 billion. If so, that would imply a growth rate of 2.6%. By the following year, sales may rise to $4.04 billion, up 3.3%. In addition, the high-side estimate calls for $4.07 billion.

Assuming a shares outstanding count of $626.15 million, GEN stock is currently priced at 4.04X projected fiscal 2025 (calendar 2024) revenue. That gets us closer to the industry average. Further, GEN is also priced at 3.91X projected fiscal 2026 revenue.

Fundamentally, as mentioned earlier, the cybersecurity drama likely underscores for everyday consumers the importance of digital protection. That’s right up Gen Digital’s alley, making GEN stock an intriguing long-term opportunity.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.