Palo Alto Networks (NASDAQ: PANW) has reported strong earnings and raised its outlook for the coming year. It's one of today's trending stocks, but is the California-based cybersecurity specialist a good investment?
What is PANW?
The company says it aims to address the world's greatest security challenges with continuous innovation that seizes the latest breakthroughs in artificial intelligence, analytics, automation, and orchestration.
It has more than 85,000 customers in at least 150 countries, generating income through product sales and subscription and support.
PANW’s Q2 Highlights
Total revenue for the fiscal second quarter 2022 grew 30% year over year to $1.3bn, while GAAP net loss was $93.5m. this equates to a loss of or $0.95 per diluted share, compared with $1.48 per diluted share in the same period 12 months earlier.
Palo Alto Networks CEO and chairman, Nikesh Arora, said:
"In Q2, our company continued to benefit from strength across our three security platforms, driven by strong cybersecurity demand, organizations architecting for hybrid work and growing their hyperscale cloud footprints.
"On the back of this strength, notably in our next-generation security offerings, we are raising our guidance for the year across revenue, billings, and earnings per share."
As such, the company’s guidance for the year ahead was updated to show revenue increasing by between 27% and 29%. Meanwhile, forecasts for total billings were pit in the range of $6.80bn to $6.85bn, representing year-over-year growth of between 25% and 26%.
Financial Metrics
P/BV: 91.68
P/S: 10.25
Forward P/E: 67.11
Market Cap: $47.57bn
Cash and Cash Equivalents: $1.92bn
Total Current Liabilities: $7.4bn
Total Liabilities: $10.4bn
Is PANW a Good Investment?
A number of analysts changed their approach to Palo Alto Networks following the earnings release. JPMorgan analyst Sterling Auty upgraded the stock to neutral from underweight and boosted its price target to $620, while analysts at Citi and KeyBanc also adjusted price targets upwards.
The strong enterprise demand for cybersecurity is of course a welcome sign for the stock and the consequent boost to yearly outlook has unsurprisingly turned the heads of investors.
However, the stock’s high P/BV and low ROE indicate that it could be overvalued among peers in the security industry.
From the stock’s high P/E ratio we can also infer that investors expect it to perform well in the future, but the company remains a long way from that level of performance. PANW’s earnings show that things are going in the right direction, but the company remains a speculative investment in a competitive space.
That being said, the company's share price has increased by more than 30% over the last 12 months, reaching a high of almost $570 as December came to a close.