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.

Should you invest £1,000 in Darktrace Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Darktrace Plc made the list?

See the 6 stocks

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 £1,000 in Darktrace Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Darktrace Plc made the list?

See the 6 stocks

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

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Is the Nvidia share price about to hit a new 52-week high?

Nvidia just released very impressive numbers yet again, and the share price is responding positively. But is the stock worth…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

£10,000 invested in BAE Systems’ shares six months ago is now worth…

Harvey Jones examines how BAE Systems' shares have performed over the last six months, and what comes next for the…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

A success story: this small-cap UK stock is up 126%… but can it go further?

There haven’t been that many small-cap UK stock success stories over the past few years, but this one is doing…

Read more »

Close-up as a woman counts out modern British banknotes.
Investing Articles

Here’s how Tesco shares stack up against my 5-point passive income checks

Tesco shares have provided generations with some solid income over the years. But nothing should ever be assumed in this…

Read more »

US Tariffs street sign
Investing Articles

2 ‘tariff-resistant’ UK shares to consider buying

As the Court of International Trade creates the latest round of tariff uncertainty in the US, Stephen Wright is looking…

Read more »

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Investing Articles

Could buying £5k of Tesla stock help someone earn a second income?

Our writer discusses ways an investor could target a three-figure annual second income with a spare £5k by buying shares.…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this former darling FTSE 250 trust set for a massive comeback?

This FTSE 250 investment trust spanked the market for years, but has fallen on tougher times in recent times. Should…

Read more »

Illustration of flames over a black background
Investing Articles

This former penny stock’s on fire – time for me to double down?

It's not often that Harvey Jones takes a punt on a penny stock. Maybe he should do it more often,…

Read more »