Palo Alto Networks Inc (NYSE:PANW) has a history of making big moves after reporting earnings, but unfortunately not always in the same direction. PANW stock rallied 17% the day following the latest release, and it was down 24% after the one prior.
With its next set of quarterly numbers scheduled to be released on Aug. 31, many investors are trying to determine which direction the move will take this time.
To help figure that out, let’s break Palo Alto down using my three-pronged approach.
We’ll start with the technicals. Palo Alto’s chart isn’t overly impressive since the shares gapped up on the last report. Since then, the stock is down 7% and has been struggling to gain any sort of momentum. In fact, it remains 15% below its price prior to the post-earnings weakness two quarters ago.
Now there’s no question PANW stock is in a NexGen sector — cybersecurity. However, the stock has been unable to form a longer-term uptrend and has actually found itself in a downtrend since the third quarter of 2015. The Nasdaq Composite is up more than 20% in this time period.
Cybersecurity stocks as a whole have lagged the market, and Palo Alto Networks is not alone in underperforming. The good news is that at some point the sector will be able to find its footing, allowing stocks like PANW to once again lead the pack.
Fundamentally, management expects to continue growing earnings at an above-average pace. And based on fiscal 2018 estimates, the stock trades at 40 times earnings, with a price/earnings-to-growth ratio of 1.6. The fundamentals are slightly above the market overall, so I don’t consider PANW stock a must-buy at this time.
In fact, even when earnings are added into the mix, the stock will remain unattractive.
Finally, the intangibles, or the catalysts that will drive the company in the future.
These are actually in favor of Palo Alto over the long-term because demand for the sector’s products will remain and even continue to grow. However, until the group can turn things around on the chart, there is increased risk in this stock.
Wall Street is looking for earnings of 79 cents per share in the upcoming report, and while I can’t guess where the company’s numbers will come in or how the stock will react, one thing I would bet on is that a big move is coming.
Unfortunately, the risk is too great to bet on that being to the upside.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.