Palo Alto Networks Stock: Analyzing the Timing for Investment

Palo Alto Networks

 The cybersecurity sector remains one of the most dynamic and crucial segments within the technology industry. The increasing adoption of cloud-based services, Internet of Things (IoT) devices, artificial intelligence (AI), and machine learning (ML) technologies, along with the growing frequency and sophistication of cyberattacks, drives demand in this field. Projections indicate that the global cybersecurity market size could reach $500.7 billion by 2030, with a compounded annual growth rate (CAGR) of 12.3% from 2023 to 2030, as reported by Grand View Research.

However, within this industry, certain short-term challenges have emerged. Amid rising competition, cybersecurity companies face vulnerability to macroeconomic uncertainties. This concern was highlighted by Fortinet (NASDAQ:FTNT) last week, which cited delayed deal closures in the June quarter due to an “unusually large volume of deals.” This news led to a significant drop in FTNT’s stock, and other cybersecurity stocks followed suit.

Despite these challenges, the recent dip might provide an opportunity for investors interested in specific cybersecurity stocks.

Palo Alto Networks (NASDAQ:PANW), a major player in this field, offers a comprehensive range of security products and services to safeguard networks, clouds, and endpoints from cyberattacks. With a market capitalization of $65.8 billion, Palo Alto Networks stands as one of the largest cybersecurity companies globally. The question arises: Is now a favorable time to acquire shares of this cybersecurity leader?

Recent Performance Analysis of Palo Alto Networks Stock

PANW attained an all-time high of $258.88 on July 5, but the stock has since retreated by 17.9% from that peak. Much of this pullback was triggered by Fortinet’s cautionary announcement, resulting in a 10.5% decline in Palo Alto shares since last Thursday.

Viewed more broadly, PANW still boasts a year-to-date gain of over 52%. This significantly outpaces the S&P 500’s comparable return of 16.6%, as well as the returns of its key competitors. Fortinet has risen 19.4% this year, Cisco Systems (NASDAQ:CSCO) has increased by 13.1%, and Check Point Software Technologies (NASDAQ:CHKP) has managed a modest gain of 0.4%.

In terms of valuation, Palo Alto Networks maintains a trailing 12-month price-to-earnings ratio of 220.53 and a forward price-to-earnings ratio of 128.26. Although both figures exceed industry averages of 55.67 and 38.77, respectively, the stock anticipates a relatively higher expected earnings growth rate of 32.86% over the next five years, compared to the industry average of 19.77%. Furthermore, PANW’s price-to-sales ratio of 10.88 remains lower than certain peers, such as CrowdStrike (NASDAQ:CRWD) at 15.92 and Zscaler (NASDAQ:ZS) at 14.13.

Considering these metrics, Palo Alto Networks appears not to be overvalued and may offer superior growth potential and market positioning.

Palo Alto Networks in Anticipation of Earnings

Prior to its upcoming earnings report on Friday, Aug. 18, the average estimate for Palo Alto Networks indicates earnings of $0.54 per share, a 260% year-over-year increase, with revenue projected at $1.19 billion, marking a 26% year-over-year rise.

While the fiscal year 2023 anticipates earnings to surge 469% to $1.44 per share, this growth rate is expected to moderate in 2024, projecting a growth of 28.5%.

The stock garners significant support from analysts covering it. Among 37 analysts, 32 maintain a Strong Buy rating, 2 a Buy rating, and 3 a Hold rating for the stock. The mean price target stands at $250.40, indicating a potential upside of 17.8% from current levels.

Should You Invest in Palo Alto Networks Stock Now or Await Better Opportunities?

Palo Alto Networks is a prominent cybersecurity leader displaying robust price performance within an industry offering substantial growth prospects. However, it’s crucial to acknowledge potential short-term headwinds, including macroeconomic pressures similar to those influencing Fortinet’s recent setback.

Despite these challenges, Palo Alto Networks presents enticing long-term prospects for investors seeking involvement in the thriving cybersecurity realm. Moreover, the current macroeconomic headwinds may already be factored into the stock’s price following the widespread sell-off triggered by Fortinet’s warning.

While Palo Alto Networks stock might face volatility and short-term challenges, it also holds significant long-term potential for investors eyeing exposure to the expanding cybersecurity sector. Thus, now could be an opportune moment to acquire shares of this stock or, at the very least, monitor it for a potential post-earnings uptick.

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About the author: Stephanie Bédard-Châteauneuf has over seven years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, market news, and personal finance. She has an MBA in finance.