NEW YORK (TheStreet) -- For companies like Palo Alto Networks (PANW) - Get Report and Fortinet (FTNT) - Get Report , whose shares are both up 50% in 2015, preventing cybercriminals and hackers from stealing sensitive data has been a profitable business. For others like Barracuda Networks (CUDA) , it's been a struggle.
Barracuda reports second-quarter fiscal 2016 earnings results Tuesday after the closing bell. The company's shares have lost some 28% of their value so far in 2015, including a decline of 33% in the past six months. Yet even now, Barracuda shares aren't cheap at 71 times forward earnings estimates of 39 cents a share. For reference, that's more than four times the ratio of average stock in the S&P 500 (SPX) index.
The pricey valuation is one thing. Barracuda stock has struggled despite its strong portfolio of products and services that protect businesses from data breaches, as well as improving its customers' network performance. In its first quarter, these services combined delivered 18% year-over-year revenue growth, helping Barracuda exceed Wall Street's estimates for both revenue and profits.
So what's the problem? Barracuda, headquartered in Silicon Valley, Calif., operates in a crowded field, where it is seemingly being surpassed by the aforementioned Palo Alto Networks and Fortinet, which are also much bigger. And it hasn't helped that Barracuda, which was founded in 2003 and became a publicly-traded company in 2013, angered investors in the first quarter by missing its own billings forecast.
In the first quarter, the company's billings climbed just 8% year over year, reaching $94.3 million. Not only was that figure drastically below the company's 18% revenue growth rate, it was also far below Barracuda's own billings growth forecast of 16% to 18% for fiscal year 2016. The billings metric, especially in the software business, denotes the strength of future revenue, or commitments to buy.
In this case, a billings shortfall this far below the company's own forecast would imply not only possible operational deficits, but also slowing growth in quarters ahead. And for stock that's richly valued on future growth expectations, that's not the message Barracuda should want to send.
For the quarter that ended August, analysts' average earnings estimate calls for 9 cents a share on revenue of $78.56 million, increases of 12.5% and 14%, respectively. For the full year ending February 2016, anticipated earnings of 39 cents per share would mark a 40% increase, while revenue of $325.6 million would mark a 17% jump.
Despite the projected strong quarterly and full-year numbers, avoiding the stock ahead of Tuesday's results would be a smart move. Investors are well advised to stay away from Barracuda until the billings metric -- an important predictor of future growth -- improves.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.