Well, this looks awfully familiar … Leading cyber-security firm Palo Alto Networks Inc (NYSE:PANW) reported blowout fourth-quarter results on Thursday.
It was a clean beat-and-raise quarter that underscored the secular growth narrative in the cyber-security space. The more digitally connected our world becomes and the more valuable data moves online, the more demand for cyber-security solutions will grow.
Consequently, PANW stock jumped more than 10% higher on the good report. This is pretty much just a repeat of what happened three months ago.
Palo Alto Networks reported blowout third quarter numbers in late May. That was also a clean beat-and-raise quarter. PANW stock jumped 17%. Fueled by the past two earnings report, then, PANW stock has jumped from around $115 to nearly $150 in just a few months.
Clearly, there is some good momentum in this name. And I think it’s likely to continue. Here’s why.
PANW Has Its Mojo Back
For a while, PANW stock could do no wrong.
The company was the poster child for the robust cyber-security growth narrative. Beat-and-raise quarters were the norm. Every time Palo Alto Networks reported earnings, the numbers were better than expected and the guide wowed investors and analysts alike. The result was a stock that did nothing but climb higher.
But that was back from late 2013 to late 2015 when the stock moved from $40 to about $190.
PANW hit a snag in mid-2016 when growth started to slow and earnings began to stumble. Over the next several quarters, the company failed to repeat on its early success. Beat-and-raise quarters didn’t happen. Earnings came in mostly in line with expectations. Revenues missed a few times in late 2016 and early 2017. Guides were weak.
So PANW stock did nothing but grind lower, falling from about $190 in December 2015 to $110 to April 2017.
But things are starting to turn the corner. In late May, the PANW reported its first clean beat-and-raise quarter since early 2016. PANW followed up that May report with another clean beat and raise in its August report.
Back-to-back beat-and-raise quarters? It looks like PANW stock is back to its winning ways.
And the fundamental backdrop supports this thesis as well.
Palo Alto Networks added 3,000 new customers last quarter. That is by far and away the strongest quarter for new customers in the company’s history. Also during the quarter, all top-25 lifetime-value customers again made a purchase, so this growing customer base is also particularly sticky.
So, PANW has a high retention customer base that is growing faster than ever. That is the sort of stuff that will reinvigorate investor enthusiasm. And it’s what is allowing PANW stock to get its Wall Street mojo back.
Bottom Line on PANW Stock
PANW stock is trading at 45-times next year’s guided earnings. Meanwhile, earnings growth over the next several years is pegged at roughly 30%. That gives PANW stock a price-earnings to growth profile (PEG) of about 1.5.
That isn’t bad for a hyper-growth tech stock with very strong secular tailwinds propping up growth.
It also isn’t bad considering the S&P 500 Index trades at 17.4-times forward earnings for an earnings growth outlook of roughly 11%. That means the S&P 500 has a PEG of roughly 1.6, higher than Palo Alto’s PEG.
From this standpoint, PANW stock continues to trade at a more attractive valuation than the market. I like that setup. Yes, PANW stock is up some 25% over the past three months, but it’s also some 25% off its 2015 high.
With all the secular tailwinds in place and Palo Alto Networks getting its Wall Street mojo back, there really isn’t much in the way of this stock heading to $200.
As of this writing, Luke Lango was long PANW stock.
