A successful portfolio manager understands the importance of adding well-performing stocks at the right time. Indicators of a stock’s bullish run includes a rise in its share price and strong fundamentals.
One such stock that investors need to hold on to right now is Palo Alto Networks Inc. PANW. There are a few short-lived concerns regarding the stock but it has the potential to perform well over the long haul.
The stock has returned approximately 20.4% in the last three months, outperforming the Zacks categorized IT security industry’s gain of 14.7%.
Let’s look at the reasons behind Palo Alto Networks’ solid momentum.
What’s Driving the Stock?
Palo Alto Networks allows firms, service providers and government bodies to impose tighter security measures through its network security platform. The company reported wider-than-expected loss in the third-quarter fiscal 2017. Revenues, however, surpassed the Zacks Consensus Estimate. The company provided encouraging revenue guidance for the fourth quarter.
For the fourth quarter of fiscal 2017, Palo Alto Networks expects revenues in the range of $481 million to $491 million, up 20% to 23% year over year. The Zacks Consensus Estimate is pegged at $484.4 million. The company expects non-GAAP earnings per share within 78 cents to 80 cents.
Palo Alto Networks is gaining customer accounts and increasing penetration of existing customers, thereby driving revenue growth. During the third quarter, the company added over 2,000 customers, bringing the total to approximately 39,500 worldwide, including over 86 of the Fortune 100 and more than 60% of the Global 2,000. It is to be noted that in each of the last 21 quarters, Palo Alto has added at least 1,000 customers. The vast customer base presents the company an opportunity to upsell products within its installed user base. Any product revamp brings in additional dollars as enterprises attempt to keep their threat-management infrastructure updated. These factors, in turn, support the company’s top line.
Revenue growth seems to be steady, aided by strength across all its geographical regions and business segments. Customer wins coupled with expansion of the company’s existing customer base are other positives. We believe that the company’s product refreshes and acquisition synergies will boost revenues, going forward.
Given that the company’s long-term earnings per share growth rate is 27.9% and has a Growth Style Score of 'A', we believe that the stock still has much upside potential.
Risks Remain
Although the company is keen on expanding its cloud exposure, a volatile spending environment and competition from Cisco Systems, Inc. CSCO and Check Point Software Technologies Ltd. CHKP remain concerns.
Bottom Line
Keeping these positives in mind, we feel Palo Alto Networks is one such technology stock that deserves a place in investors’ portfolio. We can essentially filter the negatives and focus on the positives which drive price.
Palo Alto Networks carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering is NV5 Global Inc. NVEE, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected earnings per share growth rate for NV5 Global is 20%.
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