Palo Alto Networks, Inc. (NYSE: PANW)
Palo Alto Networks is one of the leading cybersecurity companies that's been steadily shifting to a cloud-based software-as-a-service operating model. It’s an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. The company is slated to undergo a 3-for-1 forward stock split tomorrow, which has led to an increase in mentions by 153% over the last day, prompting investors to wonder what made the company so successful that it could go forward with this. Currently, shares of Palo Alto trade at $183.
Monster increases in revenue, free cash flow, and remaining performance obligation have all contributed to positive hype for Palo Alto, here are some reasons you should consider taking a position in the company.
The company has been doing well in terms of revenue increases, in its last fiscal revenue earnings were up 29%, driven by 60% growth in next-gen security offerings.
In five years, the percentage of full-year sales derived from subscriptions has grown from 59.7% to 75.2%, which could also help reduce the revenue lumpiness associated with physical product replacement cycles.
Meanwhile, the company is converting one-third of every dollar of sales into free cash flow, which allows it to continue innovating and repurchasing its stock.
To add, Palo Alto ended its most recent fiscal year with $8.2 billion in remaining performance obligations (i.e., future performance obligations based on existing contracts). This represents about 119% of the $6.85 billion to $6.9 billion in total sales the company expects to report in fiscal 2023 enabling it to withstand fluctuations from short-term events in the near future.
Palo Alto Networks also achieved profitability for the first time in several years, and that has helped the stock beat the market so far in 2022.
Moreover, overall, the company has a positive outlook for the future. It sees total revenue surging more than 25%, powered by 37% to 40% growth in next-gen security.
Although Palo Alto Networks, Inc. seems like a solid company to invest in right now, there are factors working against its potential growth. Here is one of them.
Investors are sceptical because there is the potential of a slowdown in the economy. The expectation on Wall Street is that businesses will be paring back spending in anticipation of near-term economic weakness, which could hurt companies like Palo Alto Networks.
Despite concerns of an impending economic slowdown, Palo Alto Networks expects its strong sales growth to continue over the next fiscal year. No matter how poorly the U.S. economy or stock market performs, hackers and robots don't take time off from trying to steal critical data. Palo Alto currently trades at eight times this year's sales, which is decent enough to warrant being considered at this moment. A stock split may provide a short-term boost to the stock, but Palo Alto's outstanding results should continue to drive long-term profits for shareholders.
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