Telos Stock Moves to Value-Play Status

Cybersecurity threats continue to be daily occurrences. We only hear about the major intrusions, but in reality, the attacks are constant. Given that more people have been working from home instead of at offices, the demand for protection of critical information will continue to provide tailwinds for cybersecurity companies.

Last year, Gartner, Inc. estimated that the global spending on information security and risk management technology and services would be $150.4 billion in 2021. (Source: “Gartner Forecasts Worldwide Security and Risk Management Spending to Exceed $150 Billion in 2021,” Gartner, Inc., May 17, 2021) 

The research and advisory firm attributed the strength of the sector to the trend of remote working, which—even after many workers return to offices following the COVID-19 pandemic—is expected to remain strong.

On the small-cap end of the cybersecurity sector, a contrarian play worth watching is Telos Corp (NASDAQ:TLS). The company develops a broad range of cybersecurity software.

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Its clients include Fortune 500 companies, government agencies, and the military. Telos counts Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) among its customers. (Source: “Form 10-K,” Telos Corp, March 25, 2021.)

Telos Corp is expected to deliver strong financial growth, but investors don’t seem to like TLS stock. It’s down by a whopping 74% from its 52-week high and it recently traded at a range low of $10.04.

Telos stock is also down by 44.8% over the last three months and 32.7% year-to-date. It’s at the point where I view the selling as excessive.

TLS Stock Chart Points to Potential Double

The Telos stock chart is nothing short of bearish. If you bought shares of Telos Corp at $41.84 in January 2021 following the company’s initial public offering (IPO) in November 2020, you didn’t have a good year.

TLS stock staged several attempts to rally in 2021, but the lack of buying momentum halted any upside moves.

The selling of Telos stock was triggered by the bearish gap down in November 2021 that was accompanied by weak relative strength and a moving average convergence/divergence (MACD) sell.

Chart courtesy of StockCharts.com

Now down by 74% from its 52-week high, TLS stock is technically oversold. A revival of Telos Corp’s relative strength and MACD could power a rally.

The Fibonacci retracement lines point to a significant upside move to $20.78, then to $24.18, $27.57, and $40.00. This implies potential gains ranging from 135% to 288%.

Analyst Take

While the technical picture suggests that major gains could be on the horizon for Telos stock, the fundamentals also support a higher share price.

Consider that, with the excessive selling, Telos Corp is trading at only 1.7 times its consensus 2022 revenue estimate and 14.9 times its consensus 2022 earnings-per-share (EPS) estimate. (Source: “Telos Corporation (TLS),” Yahoo! Finance, last accessed February 18, 2022.)

Moreover, the company has ample net cash of about $120.0 million, or 18% of its market cap.

Telos is well positioned to take advantage of the tailwinds in the cybersecurity market. If Telos Corp can deliver on its expectations, TLS stock will likely move higher.

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