Has NortonLifeLock Stock Peaked At $19?

Despite a 15% rise since its low in March, at the current price of $19 per share we believe NortonLifeLock stock (NASDAQ: NLOK) has reached its near term potential. NLOK stock has rallied from $16.50 to $19 off the recent bottom compared to the S&P which moved 34%. Further, NLOK stock is up about 3% from levels seen at the end of 2018, a little over a year ago.

NLOK stock has almost reached the level it was at before the drop in March due to the coronavirus outbreak becoming a pandemic. This seems to make it appear fully valued as, in reality, demand and revenues will likely be affected this year.

This rise over the last year came despite a 3% decrease in NLOK revenues from 2018 to 2020 (NLOK’s fiscal year ends in April), which combined with a roughly unchanged outstanding share count, led to a 2.5% drop in revenue per share (RPS).

Its P/S multiple saw an increase from 4.5x in 2018 to 6.5x in 2019, but has dropped again to around 4.7x, as the company sold off its lucrative enterprise security business and now focuses exclusively on consumer security. Further, we believe the stock is unlikely to see significant upside despite the recent rally, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove 3.4% Change in NortonLifeLock Stock between 2018 and now? has the underlying numbers.

NLOK’s P/S multiple has changed from 4.5x in 2018 to 4.7x currently. We believe there is possible downside when the current P/S is compared to levels seen in the past years: P/S of 3x in 2015 and 4x as recently as 2017.

So what’s the likely trigger and timing for this downside?

While the global spread of Coronavirus has boosted demand for internet security, the resulting lockdowns in many countries has mainly led to a rise in demand for enterprise security services (which NLOK got out of in 2019) and not so much for consumer security as the crisis has not affected the way in which individuals browse the internet and their online security needs. We believe NLOK’s Q1 ’21 results in August will paint a clearer picture. Whether it also accompanies a lower Q2 2021 guidance or not, remains to be seen.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/S decline from the current level of 4.7x to 4x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to around $16.

While NortonLifeLock stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

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