Palo Alto inventory was doing nicely when it was a development inventory, however how is it doing now that development has slowed?
Palo Alto Networks (PANW -1.22%) inventory is in turmoil. Two months in the past, the cybersecurity firm reported sturdy earnings however lowered its steering, inflicting its inventory worth to fall. Palo Alto hasn’t recovered a lot since then.
This might change. As TheFly.com reported, on Thursday, KeyBanc analyst Michael Tulitz lowered his worth goal on Palo Alto. However, Tulitz nonetheless charges Palo Alto Networks as “chubby,” saying the inventory continues to be price about $355 per share.
However, as a Palo Alto shareholder myself, I’ve to confess. Mr. Tulitz’s optimism is sort of susceptible.
Is Palo Alto Networks inventory a purchase?
Consider: KeyBanc’s proprietary Q1 2024 Value-Added Reseller (VAR) Survey discovered that half of IT departments at firms Palo Alto sells to are spending much less on cybersecurity than they’ve budgeted for this 12 months. It turned clear that it was under the quantity. Tulitz referred to as this quantity “the bottom quarterly quantity because the heart of the pandemic.” Several different research assist this view, suggesting that the scenario is definitely getting worse for cybersecurity distributors like Palo Alto, not higher.
Tulitz’s conclusion: This is a “development” proper now, and it is not good for Palo Alto inventory. But if that is the case, why would we advocate shopping for Palo Alto inventory now?
This is a superb query. Because the extra I have a look at this inventory (which I personal), the much less I prefer it.
The price-to-earnings ratio is sort of 40 occasions, and the collective knowledge of the practically 40 analysts who observe Palo Alto means that earnings development over the subsequent 5 years can be solely 18.5% per 12 months. This implies a price-to-earnings ratio (PEG) of two.1. On the opposite hand, most worth traders purpose to purchase at his PEG under 1.0.
Given its beneficiant valuation, it appears extremely unlikely that Palo Alto inventory will outperform the market over the subsequent 5 years. Now looks like a nasty time to get into Palo Alto Networks inventory, given the near-term dangers of Palo Alto attempting to promote cybersecurity in a traditionally depressed IT market.
Rich Smith has a place at Palo Alto Networks. The Motley Fool has a place in and recommends Palo Alto Networks. The Motley Fool has a disclosure coverage.