Is tech share Prophecy International Holdings Limited a bargain buy at this price?

Prophecy International Holdings Limited (ASX:PRO) shares have been cut in half this year. Does this make them a bargain buy?

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It hasn't been a great year for shareholders of Prophecy International Holdings Limited (ASX: PRO). Year to date its share price has been cut in half despite the company delivering record sales in its recent FY 2016 results.

Sales jumped 47% year on year to $14.7 million, with earnings before interest, tax, depreciation, and amortisation coming in 13% higher at a record $5.1 million.

Playing a big role in driving Prophecy's growth was its two key software products SNARE and eMite.

SNARE is cybersecurity software designed to detect system intrusion and analyse large amounts of events data. Sales of SNARE rose 27% in FY 2016, contributing $7.6 million to total company sales.

eMite is customisable dashboard software designed for the monitoring and management of IT systems and services. Prophecy acquired the eMite software in July 2015 for $4 million and this year it contributed $4 million to total company sales.

As positive as these results may sound, they were well short of expectations unfortunately. When management completed the eMite deal they advised that for the full year they expected it to result in FY 2016 total company sales of $20 million.

Only achieving sales of $14.7 million for the year is bitterly disappointing considering its previous forecasts. Whilst a portion of the drop in sales was down to timing and should appear in FY 2017, even when taking that into account sales were still much lower than first predicted.

For this reason it isn't too much of a surprise to see its share price come crashing down.

But does this make Prophecy a bargain buy now?

The cybersecurity software market is definitely a market which I feel has extremely strong growth prospects. If Prophecy can gain a foothold in the industry then it has the potential to become a much bigger company than it is today.

But let's not forget that it is also a highly competitive one too. So with its shares changing hands at 26x full year earnings despite being cut in half, I would recommend holding off investing and waiting for an update on how FY 2017 is tracking first.

In the meantime I think data encryption provider Senetas Corporation Limited (ASX: SEN) could be a better option for investors.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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