Is Palo Alto Networks Stock A Buy?

Is Palo Alto Networks Stock A Buy? Cybercrime is a massive threat to individuals and businesses of all sizes. Cybercriminals are getting better at breaching security, and they have demonstrated an aptitude for creativity, flexibility, and adaptability.

Attacks are becoming more frequent and more successful, and victims are suffering substantial losses as a result. As more data is stored digitally and the number of devices connected to networks grows, cyberattacks are expected to increase proportionally.

Companies focused on cybersecurity play a critical role in preventing data theft, identifying breaches, and mitigating the impact of successful attacks. For investors, the question is which company is best-positioned to keep pace with changing cybercrime tactics, so that it can successfully protect clients from cyberthreats?

Cybercrime Statistics

Many business leaders believe that cybercrime is only an issue for large organizations. They assume that financial institutions, tech companies and government agencies are most at risk.

While big companies are certainly an attractive target for cybercriminals, the truth is that small and medium-sized businesses face a greater threat.

These are some of the facts about cybercrime:

  • 43 percent of cyberattacks are against businesses with less than 1,000 employees.
  • 91 percent of attacks start with a phishing email.
  • From January 1, 2005 to April 18, 2018, there were 8,854 recorded data breaches involving millions of records. The average per-record cost to businesses is $350.
  • Attacks related to the Internet of Things (IoT) increased by 600 percent in 2017. “Things” include smartphones and other mobile devices connected to business networks.
  • It takes an average of six months for most companies to detect a data breach.
  • In 2016, cybercrime impacted 48 percent of US credit cards.
  • In 2017, the average cost to businesses for a malware attack was $2.4 million.
  • Mac systems are not safe from cyberthreats. In 2017, there was an 80 percent increase in malware attacks on Mac computers.
  • Ransomware attacks are increasing by an average of 350 percent per year.
  • By 2021, the total cost of cybercrime worldwide is projected to reach $6 trillion.
  • Only 38 percent of businesses worldwide report that they are ready for and able to handle a cyberattack.

Clearly, there is substantial opportunity for companies with experience and expertise in preventing cybercrime and mitigating the impact of breaches. Palo Alto Networks has long been considered such a company – but will it continue to be successful as the digital landscape gets more complex?

Palo Alto Networks Business Model

Palo Alto Networks was founded in 2005, and it pioneered the field of cybersecurity. The company has long been a leader in advanced firewalls, and it has adapted to changes in the digital landscape quickly and effectively over the past 14 years.

Today, Palo Alto Networks [NYSE: PANW] operates globally, offering cybersecurity that extends to the cloud. The company positions itself as a provider of cutting-edge solutions, stating:

“We are enabling businesses to transition to the cloud without fear, while our pioneering next-generation firewall helps tens of thousands of organizations protect billions of people worldwide.”

Palo Alto Networks’ client list covers more than 60,000 organizations in 150 countries worldwide. At last count, more than 80 of the Fortune100 businesses trusted Palo Alto Networks’ cybersecurity tools.

Palo Alto Networks’  leaders have proven that they aren’t only concerned with profits. In 2014, the company founded a non-profit organization called the Cyber Threat Alliance to improve communication and collaboration among cybersecurity experts “for the greater good”.

More than 20 of the cybersecurity industry’s biggest names have joined, including McAfee, Fortinet, Cisco, Symantec, and Sophos. The organizations work together to identify new threats, sharing intelligence collected through business operations.

What are the Risks and Benefits of Buying Palo Alto Networks Stock Today? 

The cybersecurity field is ripe for disruption, and a variety of established organizations and start-ups are pursuing Palo Alto Networks’ market share.

While some have been successful in developing advanced tools in certain niche areas, none have quite managed to create the suite of protections Palo Alto Networks offers.

This works in the company’s favor, as research shows attacks are less successful when security is coordinated by a single provider. Experts recommend choosing a single service that can provide comprehensive prevention and mitigation tools. However, Palo Alto Networks [NYSE: PANW] can’t coast on this recommendation for long.

Changes in technology and increased skill among cybercriminals means businesses must be able to protect against new threats real-time. Some analysts question whether Palo Alto Networks [NYSE: PANW] can keep up.

To date, business leaders have pursued the necessary technology through acquisition of niche cybersecurity firms. Some recent purchases include container security leader Twistlock and serverless security leader PureSec.

While these acquisitions have given the company greater access to advanced technology, analysts aren’t convinced that this strategy will be effective long-term. The result has been highly volatile stock prices – a trend that is predicted to continue over the coming year.

Palo Alto Networks by the Numbers

The quarter ending July 31, 2019, brought good financial news for Palo Alto Networks [NYSE: PANW]. The company exceeded its own revenue guidance, increasing year over year by 22 percent instead of the predicted 20 percent – 21 percent for a total of $806 million.

For the first time, billings surpassed the $1 billion mark, and adjusted earnings per share reached $1.47. This also exceeded expectations originally set at $1.41 per share.

For the 12-month period ending July 31, 2019, the picture was even brighter. Total revenues were up by 28 percent at $2.90 billion, and gross profit margin came in at 72.1 percent. Adjusted earnings per share were $5.45 – up 30 percent from the previous year’s $4.20.

Going forward, business leaders indicated that they expect to see respectable growth – at least 20 percent over the next three years for billings, and at least 20 percent over the next two years for revenues. These figures don’t quite meet investors’ expectations, leading to some of the volatility in share prices in the days following the earnings call.

The bottom line is that Palo Alto Networks [NYSE: PANW] has a long history of leading the cybersecurity industry. Investors that have confidence in its continued ability to keep up with changes in technology may be able to find a bargain during the current stock price roller coaster. However, those that are interested in substantial short-term gains may be disappointed.