Palo Alto Networks (NASDAQ:PANW) stock has had quite a wild ride since the beginning of Q4 last year.
Things were looking good for Palo Alto for most of 2018, until the tech selloff started. PANW stock slid more than 40% into the end of the year.
But that’s why its current three-month performance of nearly 30% and its year to date return of 25% is testament to the real inherent value in the stock, beyond the broad based sector moves.
Palo Alto reported it fiscal Q2 earnings in late February and they only accelerated PANW stock’s flight back beyond last year’s highs.
Its Q2 loss was $2.6 million (3 cents a share) compared to a loss of $25.6 million (28 cents a share) in the same quarter last year. Earnings came in at $1.51 a share and the analysts were expecting $1.22. Revenue was $711.2 for the quarter — compared to same quarter last year of $545.6 — and the analysts were expecting $682.1.
Billings for the quarter rose 27% compared to the same quarter last year. And guidance for the coming quarter is comfortably higher than current analysts’ expectations, which is a bullish sign.
Adding to all this, in the quarterly announcement Palo Alto announced that it will be buying back $1 billion in stock in coming quarters. That will also help boost earnings and share prices, as less stock will be available for the increasing demand.
PANW Stock’s Strengths
PANW has been around for about 14 years now, so it’s not an upstart. And its $22 billion market cap also places it near the top of the heap of dedicated cybersecurity companies.
As more of our lives becomes digitized, opportunities for cybersecurity companies continue to expand. But once companies reach a certain size, the pieces of security they have purchased for various platforms or divisions starts to become an unmanageable mess. Unifying security as much as possible becomes a very attractive idea for many enterprise-level companies.
And PANW is addressing this challenge with its Cortex platform, which is already deployed to some of its top clients. It also has been on the acquisition trail, with five acquisitions in the past year.
The most recent is cutting-edge SOAR — security orchestration, automation and response — security firm Demisto for $560 million. Each of these acquisitions is focused on building a robust one-stop shop for integrated security platforms.
While this shows that PANW knows the needs of its customers and is actively adapting to them, it also is well versed in how best to derive value for its shareholders.
It didn’t need too much time to see that it was a much better idea to sell its products as subscription services rather than outright purchases. This makes recurring revenue much more stable than having to reach out with every new upgrade or new hardware iteration and try to resell customers.
This subscription-based model is quickly becoming the industry norm for cybersecurity firms. And as usual, PANW stock is ahead of the game.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.