Is Palo Alto Networks a Buy? – The Motley Fool


- Advertisement -

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Palo Alto Networks (PANW -1.16%) is still growing, and it is still churning out profits. Those were the main takeaways from the cybersecurity specialist’s mid-November earnings report, which extended the company’s positive momentum into a new fiscal year.
The management team raised their fiscal 2023 projections despite pressures on IT budgets and slowing economic growth in many markets. Let’s take a look at whether that new outlook strengthens the bullish case for this tech stock.
Many IT companies are cutting costs today, including through layoffs and reduced advertising spending. But they continue to prioritize spending on the type of security management services that Palo Alto Networks provides.
Sales rose 25% in the fiscal Q1 period that ran through late October, the company said on Nov. 17. That result pushed revenue to $1.6 billion, comfortably exceeding the outlook range that management issued in late August.
While investors shouldn’t read too much into any single quarter’s growth, it is encouraging that Palo Alto Networks has posted several consecutive quarters of strong sales. That streak points to something more sustainable than simply closing a few large contracts in the period.
That good news also showed up in areas like Palo Alto’s growing list of large enterprise clients and its expanding contract sizes. CEO Nikesh Arora said in a news release, “Our growth was driven by customers continuing to increase their commitments to our security platforms.”
Investors should be just as thrilled with the progress the company is making on its finances. Palo Alto booked its second consecutive quarter of profitability. Operating cash flow was strong, too. Executives said back in August that they were seeking to deliver a balance between growth and expanding profit margins. This report reflects success on that score.
There is more good news ahead: Executives raised their 2023 outlook on both sales and earnings. They now expect revenue to raise by as much as 26% this year, up from the prior 25% target. Forecasts for cash flow and earnings received modest upgrades as well.
Despite its success in winning market share and generating solid profits, Palo Alto Networks’ stock has barely kept pace with the market in 2022. Its valuation has dropped to below 9 times annual sales, compared to over 12 at other points in the year.
Sure, that discount reflects the potential for a recession ahead that might pressure sales over the coming quarters. A sharp economic slowdown could threaten Palo Alto Networks’ profitability, given that it only recently started generating positive operating earnings.
However, the company has many of the ingredients that investors are seeking in a growth stock. It is gaining market share in a large, expanding industry. Palo Alto Networks’ platform is winning a prime place in IT budgets, too, which means its services might stay in high demand even as enterprises cut spending elsewhere.
And its expanding profit margin in a volatile selling environment shows that the company could have strong pricing and earnings power. While the wider industry might be set for contraction over the short term, patient investors can look past those pressures to simply hold this attractive growth stock.
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.


- Advertisement -


Please enter your comment!
Please enter your name here

Share post:




More like this

LNG prices to soften by end of decade -TotalEnergies CEO

Global prices of liquefied natural gas (LNG) are expected...

Dollar slips after yen breaches key 150 level

The U.S. currency fell sharply against the yen on...

Ghana protesters demand central bank governor resign

Thousands took to the streets of Ghana's capital Accra...

Kenya picks Citi and Standard Bank to advise on maturing $2 billion Eurobond

Kenya's government has picked Citi and South Africa's Standard...