NortonLifeLock Stock Can Rise by 20%

Despite a more than 20% rise from its low in March, at the current price of $20 per share, we believe NortonLifeLock stock (NASDAQ: NLOK) has further upside potential. NLOK stock has increased from $16 to $20 off the recent bottom, much less than the S&P which increased by over 60% from its lows. Further, the stock is still around 2% lower than its 2020 pre-Covid high of $21. We believe that NLOK stock could regain its 2019 high of around $25, rising over 20% from its current level, driven by expectations of strong demand and strong Q2 2021 results despite the pandemic. Our dashboard What Factors Drove 8% Change In NortonLifeLock Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise since 2018-end came despite a 3% drop in revenue from $2.56 billion in 2018 to $2.49 billion in 2020 (NLOK’s fiscal year ends in April). Combined with a roughly unchanged outstanding share count, NLOK’s revenue-per-share (RPS) dropped 2.5% from 2018 to 2020.

NLOK’s P/S (price-to-sales) multiple rose from 4.5x in 2018 to 6.6x by 2019 end, but has since dropped to 5x. We believe that the company’s P/S ratio has the potential to rise in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 have seen a surge in online activity, due to a rise in new blogs and websites and has also led to a lot of businesses shifting online. This has driven up demand for online security and antivirus software, thus driving up demand for NortonLifeLock’s security software products. This is evident from NLOK’s Q2 2021 earnings, where revenue came in at $626 million, up from $608 million for the same period last year. Further, a drop in cost of revenue and operating expenses, saw operating income rise more than 2x, from $109 million to $230 million. As a result, net income rose more than 4x, driving EPS from $0.06 to $0.28.

We expect demand for NLOK’s products to stay strong in the medium term, driving up revenues, and if the company manages to keep operating expenses in check, profitability could jump even further. We expect this to drive up the company’s P/S multiple, and believe that NLOK’s stock can rise more than 20% from current levels, to its 2019 high of $25.

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