Headwinds Arise despite Recent Gains By TipRanks
Palo Alto Networks (NYSE 🙂 continues to be a successful operational company, just like many pandemic-era winners.
In the coming years, cloud-based security will continue to grow in popularity. With this, it’s not at high risk of missing the mark when it comes to its future quarterly results.
That said, there’s one factor it may have a tough time overcoming. It would be the growing resistance to paying for growth. As you likely know, monetary policy is tightening. It is more probable that interest rates will rise next year than they won’t.
Despite projections of 20-25% revenue and earnings growth, it’ll be difficult for Palo Alto, trading for 67.1x analyst consensus of this year’s earnings, to hold steady at today’s prices. At current levels, I remain bearish on Palo Alto stock. TipRanks has Palo Alto stock chart information.
PANW stock gained last month
Palo Alto Networks’ shares closed the month green despite a 5.6% decline in tech stocks as measured by.
PANW stock saw an expected single-digit gain due to the bullishness generated by its September 13 analyst day.
Management presented how they were able exceed their growth targets for Fiscal 2020 (year ended July 2022), as it established at the 2019 analyst day. The presentation also discussed why it will continue to be a leader in its field by shifting to a remote, cloud-based working environment.
Because of this, investors ignored the month’s rising uncertainty over the future direction of tech growth stocks. Instead they bought it to an all-time high.
Compared to similar cybersecurity names, like CrowdStrike (CRWD) and Fortinet (FTNT), PANW stock may look a lot more reasonably priced. However, its valuation may drop in the future.
The Federal Reserve will continue to tighten its monetary policies if the recent trend of rising bond yields continues. It is possible that Palo Alto will soon be unable to trade at a forward price per share well above 50.
Admittedly, this doesn’t necessarily mean a big drop in price lies ahead. The analyst consensus is for $11.43 per share by FY23, which will end July 2023. Shares may see minor price drops if technology valuations fall.
Problem? “Losing less” isn’t exactly an appealing proposition.
Wall Street Take
TipRanks gives PANW stock an average rating of Strong Buy. It has received 27 analyst ratings. Twenty-four rate it as a Buy, while three others rate it as a Hold.
Average Palo Alto share price targets are $531.67, which translates into 13.4% upside potential. Price targets for analysts can range anywhere from $420 per Share to $615 Per Share.
The Bottom Line
Palo Alto’s verdict is the same for most of its competitors. Great business, solid growth, but the price just isn’t right.
This valuation caveat may not have mattered from spring of 2020 until now, as “growth at any price” was the winning way to invest.
The bull market is evaporating, however.
Disclosure: Thomas Niel had no position at the time this article was published.
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