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The Darktrace (LSE: DARK) share price gained a few percent on Thursday, after the firm posted a Q3 update.

The shares, though, are still in one of the worst boom-to-bust cycles I’ve seen for some time.

From the shares’ launch in April 2021, the price quadrupled in just a few months. But it just as quickly collapsed. And anyone who bought at the peak has seen their shares fall by 75%.

So what happened? It’s all about cybersecurity. And that was a bit of a buzz word, with alleged Russian interference in all sorts of things, and other fears.

In those early months there was more hype than substance too. Oh, and we saw a lot of short sells.

That’s when investors think a stock is about to plunge, and borrow the shares to sell short. They hope to buy them back after they’ve crashed, and pocket the difference in cash.

And it’s still a worry now, two years on. There’s still a fair few short sells today, and they’ve been on the rise since the start of the year.

Some folk out there still think Darktrace shares will fall, and they’ve put their money on it.

In its Q3 update, the firm sounds a bit cautious. It says the economy is having an impact on new customer numbers, and on its annual recurring revenue (ARR).

ARR did grow 34% compared to last year, to $583.6m. In Q3, though, the rate of rise dipped by 6.3% from the same quarter in 2022. It still rose, but it’s a slowdown, and I wonder if it might be a sign of things to come.

Darktrace’s strong ARR is held up in part by multi-year contracts. That means that if customer numbers do fall, it might take some time for the pain to be seen.

For the full year, the firm expects revenue growth of around 31%, which is at the high end of its previous range. The EBITDA margin should also be at the upper end of its range, at about 19%.

So, will I buy? I do think things look fairly positive right now. But the big thing that holds me back is valuation.

The City has Darktrace down for a small profit by 2024, but that would put the price-to-earnings (P/E) ratio way up in the hundreds. Even by 2025, we’d still see the P/E close to 50.

And I just have no way to tell if that’s cheap, or fair value, or if it’s way too rich.

Add to that the big uncertainty in the outlook for the next few years, and how the firm’s multi-year contracts might pan out in the long term, and it turns me off.

The rise in short interest in 2023, as the share price has crept up a bit since February, adds yet another fear.

To sum up, I think we might well see the Darktrace share price rise in 2023. But I still think there’s too much risk. And that means I’ll keep away.

The post Is the Darktrace share price set to soar in 2023? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.