Shearwater (LON: SWH) shares are up 5% in London today as the company provides a trading update. While it's not specifically mentioned there is some hope buried in there. Which is that the problems they've been having in actually closing deals seem to be fading. Or, at least, not getting worse again. This has implications for NCC (LON: NCC) which reported much the same problems. Worth noting that both stocks dropped some 40% when they did report those problems. Of perhaps more interest - given that we're more likely to be following this share - is what this might mean for Darktrace (LON: DARK) (OTCPK: DRKTF). For they too have been complaining - more mildly, it is true - of the same problem and so perhaps might be similarly affected by any market turnaround.
The Shearwater results don't specifically mention closing rates but if there had been a further deterioration they most assuredly would. We can also note what that original Shearwater problem was: “The cause is trading updates showing that the cybersecurity business has become a tough one in which to get potential customers to commit.”. But the problem was only over delay. Given that predicted results are, now, what was predicted 6 weeks back it much be true that deals have been closing more recently.
Now, this does mean making a supposition, that it was external market factors which were affecting all three companies. But if we make that assumption then one solving such problems might well mean that all three do.
Shearwater Group share price from London Stock Exchange
Most notably Darktrace also complained of this problem - “That is, there's a very definite slowing in growth going on.”
Our analysis is always going to be incomplete here but assume that this problem affected all three companies the same way. Everyone knows that cybersecurity is necessary and so on. But managements are hesitant to actually pull the trigger on a purchase order. People just aren't into spending money in hte current uncertainty. Now we've got Shearwater stating that cash results are going to be as predicted 6 weeks back. That is, the problem hasn't gone worse and, in fact, they've been able to close the new business they thought they would be able to.
That should clearly have a knock on effect on our views of the other two companies. NCC and Darktrace.
Do note this is not proof, this is just thinking through the implications. We cannot say that Darktrace is about to bounce on this. But we can say that it's more likely to.
