Why Palo Alto Networks Has More Upside to Offer

Growth in cybersecurity will benefit the company

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Sep 21, 2016
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Cybersecurity stocks seem to have lost their mojo as the likes of FireEye (FEYE, Financial) have dipped massively from all-time highs, whereas market leader Palo Alto Networks (PANW, Financial) is also reporting slower growth. While FireEye is a speculative bet right now, I think investors looking to benefit from the cybersecurity sector should take a look at Palo Alto Networks.

Growing Progressively Despite Rising Competition

Palo Alto offers a next generation firewall for around 31,000 customers in more than140 countries. Currently, the company’s firewall is the best platform and has been sanctioned by the United States Department of Defense, as well as several other high-profile agencies around the globe.

Despite the fierce competition in the cybersecurity industry, Palo Alto Networks reported fourth quarter earnings per share of 50 cents, in-line with estimates. On the other hand, the company’s revenue came in at $400.80 million, $11.10 million higher than estimates. However, that figure represents a surge of 41.2% in revenue year-over-year.

Moreover, the company detailed that billing escalated 45% year-over-year to $572 million, whereas free cash flow surged 72% to $171 million. This clearly suggests that the company is growing progressively, regardless of its size.

Most significantly, the company is moving towards a real platform. As an outcome, the company endures to outperform the competition and swiftly capture market share. Commercially, the paradigm shift is providing Palo Alto with viable advantages apparent in its robust product sales, substantial growth in attached as well as non-attached subscription services, and extensive renewal rates.

Furthermore, the quick growth in recurring services offers bearable growth in both short as well as long-term deferred revenue, surging visibility into imminent revenue, greater operating margins with time and high free cash flow production. As a consequence, the company will endure to deliver high top-line growth at scale in the future.

As a matter of fact, the demand for cybersecurity services has been escalating at a rapid pace, as hackers are gradually exploring new ways to hack into the company’s system. Moreover, as per Identity Theft resource Center (ITRC), the number of personal data ruptures has surged significantly, compared to 178 million in 2015. Therefore, it can be certainly said that the company is well positioned to benefit from increasing attacks in the long run.

Conclusion

The cybersecurity market is expected to grow rapidly in the future, and Palo Alto Networks, being the market leader, is nicely positioned to benefit from it. As a result, I think investors should consider buying the stock while it is still cheap.

Disclosure: I don't hold a position in any of the stocks mentioned in the article.

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