Time to Sell Maxed-Out Palo Alto Networks Inc Stock

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PANW stock - Time to Sell Maxed-Out Palo Alto Networks Inc Stock

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In the grand scheme of things, Palo Alto Networks Inc (NYSE:PANW) shareholders have nothing to complain about. Palo Alto stock is up more than 60% for the past 12 months and has gained more than 20% just since the end of last year. Its recently reported fiscal Q2 results only sweetened the pot with a revenue and earnings beat. Simply put, PANW stock looks bulletproof.

And that’s exactly why you want to get out of it as soon as possible.

You didn’t read that wrong. While almost all the PANW stock news seems to be good news, there comes a point where the proverbial pendulum has traveled as far as it can in one direction. A return stroke in the other direction becomes all too likely.

It’s an idea that’s sure to incite die-hard fans and followers of Palo Alto stock, so before the tar is warmed up and the feathers are gathered, understand that this isn’t a long-term expectation. Indeed, PANW stock is a buy on any decent-sized pullback. That pullback, though, is likely to be a little too “decent-sized” to simply ride it out.

Nothing Left for an Encore

Kudos to the company. Last quarter’s earnings of 86 cents per share, not counting the benefit of new tax laws, handily beat expectations of 79 cents and grew nicely from the year-ago figure of 63 cents. Revenue growth was just as impressive, and the numbers extend a long-standing streak of progress.

Analysts have taken notice, too. Morgan Stanley’s Keith Weiss and KeyBanc Capital Markets’ Rob Owens both made a point of reiterating their bullish stances, adding to their bullish thesis.

The funny thing is that PANW stock didn’t get any actual upgrades after reporting great second quarter news a couple of weeks ago.

It didn’t because it effectively couldn’t. The collective “Buy” rating (slightly better than a “Buy” rating, actually) from analysts doesn’t leave any room for more upgrades. And even as some observers were following the earnings report, the price target increases have still felt a bit reserved given the data.

The graphic of analysts’ aggregate opinions and target prices for PANW stock tells the tale. The stock is “maxed out” on bullish opinions. A couple analysts are even calling it a sell, but only because they feel there’s little to no room for higher highs. (Those two analysts have been wrong thus far, but interestingly, they’re not wavering.)


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Source: ThinkorSwim

It’s not the way things are theoretically supposed to work. Analysts’ opinions are a here-and-now kind of thing.

Take a closer look at the chart above, though. At least for PANW stock, the analyst community was far too bullish in early 2016, and then far too pessimistic in mid-2017, right before shares perked up.

For better or worse, that’s the game you’re playing. You’re trying to figure out where the extreme ends of the pros’ spectrum are and recognizing when they — as a group — are late to the party. It’s got less to do with fundamentals than you might like to think.

Looking Ahead for PANW Stock

For the record, Palo Alto Networks’ rivals FireEye Inc (NASDAQ:FEYE) and Check Point Software Technologies Ltd. (NASDAQ:CHKP) are more or less in the same boat.

CHKP stock isn’t quite so overbought, but along with FEYE stock, they are also both hinting at a lull (particularly in the wake of FireEye’s recent surge). This trading outlook for Palo Alto may be almost as much about group-wide weakness as it is the company itself.

It just doesn’t matter. Though PANW stock is sure to dish out a few good days for the foreseeable future, more of them are apt to be bad, and in a bigger way.

As for where shares might finally hit a floor and rekindle a bigger-picture rally, there’s a key Fibonacci retracement line around $159 and another around $139. Both of those levels are also contentious levels where bulls and bears faced off in the past, so they’re even more meaningful battlegrounds now.


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Source: ThinkorSwim

We won’t know which (if either) is the pivotal floor until we see how the stock starts to act as they’re retested as floors.

Bottom Line on PANW Stock

It’s certainly not the narrative that jibes with the current PANW stock news headlines. But, that’s the point. All too often headlines are shaped to reflect the current trend, in some ways extending a trend. The headlines rarely if ever predict reversals, even though reversals are clear realities.

But if there’s still not enough evidence of a downside move to suit you, the solution is simple. Wait for a close below this week’s low. That would still leave the bulk of any downside in front of you rather than behind you.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/time-to-sell-maxed-out-palo-alto-stock/.

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