This Nasdaq Stock Has Shot Up 134% in a Year, and It Could Soar Another 90% | The Motley Fool (2024)

Shares of Palo Alto Networks (PANW 0.66%) have shot up an impressive 134% in the past year, outperforming the Nasdaq-100 Technology Sector index's gains of 55%. The cybersecurity specialist has benefited from the broader rally in technology stocks as well as the robust growth that it has been delivering thanks to the growing demand for the company's cybersecurity solutions.

The good part is that Palo Alto Networks could keep soaring thanks to a few simple reasons. First, the Nasdaq-100 could head higher in 2024 thanks to multiple tailwinds from a further drop in inflation, which is likely to lead the Federal Reserve to reduce interest rates three times this year. The stock could therefore get another lift in 2024 as Nasdaq stocks rise.

The second reason to be optimistic about Palo Alto is that cybersecurity spending is expected to remain robust in 2024. According to Gartner, global security and risk management spending is anticipated to jump 14.3% in 2024 to $215 billion. That would be slightly higher than the 2023 growth rate. More importantly, Palo Alto Networks is setting itself up to capitalize on hot growth niches within the cybersecurity space.

Let's look at Palo Alto's recent moves to bolster its position in the fast-growing cybersecurity market and check how they could help accelerate the company's growth.

Setting its sights on hot cybersecurity trends

Palo Alto recently closed the acquisition of Israeli firm Talon Cyber Security, a company that specializes in building secure browsers for enterprise applications, in a deal reportedly valued at $625 million. Palo Alto will be integrating Talon into its Prisma Cloud platform, allowing organizations to provide security and data protection to all their employees, even if they are using unmanaged devices.

Palo Alto points out that "integrating Talon with Prisma Access can provide customers with substantial productivity benefits by enabling unmanaged devices, but also ensures consistent security and deeper visibility into device usage, all while preserving user privacy."

The company made this acquisition to bolster its Prisma SASE (secure access service edge) platform, aiming to give customers a single, comprehensive platform to secure all web applications and devices their employees use. This is a smart move considering that the SASE market grew an impressive 35% in 2023 to $9 billion, according to Gartner.

SASE adoption is expected to remain strong thanks to the growing adoption of cloud solutions by businesses, creating the need for organizations to secure all the devices and applications on their networks. Gartner expects the SASE market's revenue to increase at an annual rate of more than 30% through 2027. This suggests that the SASE market could clock almost $26 billion in annual revenue at the end of the forecast period, and Palo Alto's strategy of strengthening its platform with a new acquisition should help it corner a bigger chunk of that market.

Talon, however, is not the only acquisition Palo Alto has made of late to bolster the Prisma Cloud security platform. The company completed the acquisition of another Israeli cybersecurity firm, Dig Security, last month in a deal that's reportedly worth $400 million. This acquisition should allow Palo Alto to cut its teeth in the data security posture management (DSPM) space, which is witnessing solid adoption by customers.

DSPM allows an organization to track its assets across multiple cloud environments and enables the cybersecurity team to protect them in case there is a breach. Gartner forecasts that more than 20% of companies will be using DSPM by 2026.

These two recent moves by Palo Alto Networks to secure its cloud security platform are smart considering that the cloud security space is expected to grow by 25% in 2024 to $7 billion, outpacing the growth of the overall cybersecurity market. According to another estimate, the global cloud security market could clock annual growth of 22% through 2032, so Palo Alto is doing the right thing by shoring up its position in this space.

Growth should accelerate thanks to recent moves

Palo Alto released its fiscal 2024 first-quarter results (for the three months ended Oct. 31, 2023) in November 2023. The company is anticipating full-year revenue to increase 18% to 19%, to between $8.15 billion and $8.20 billion. Its adjusted earnings are expected to land at $5.47 per share at the midpoint of its guidance range, translating to 23% growth over the prior year.

However, the recent acquisitions suggest that it could finish the year with stronger growth. It is also worth noting that Palo Alto was sitting on remaining performance obligations (RPO) worth $10.4 billion at the end of the previous quarter, an increase of 26% over the prior year.

This metric refers to the total value of contracts that are yet to be fulfilled, which means that it points toward a robust future revenue pipeline. The faster growth in Palo Alto's RPO as compared to its actual revenue growth indicates that the company has landed more contracts that should help it ensure solid growth over the long run.

As the following chart indicates, Palo Alto is anticipated to maintain healthy revenue growth rates over the next couple of years, though don't be surprised to see the company's growth outpacing consensus estimates given that it is bolstering its position in lucrative niches.

This Nasdaq Stock Has Shot Up 134% in a Year, and It Could Soar Another 90% | The Motley Fool (1)

PANW Revenue Estimates for Current Fiscal Year data by YCharts

Consensus estimates are forecasting Palo Alto's earnings to increase at an annual rate of almost 23% for the next five years. Based on its fiscal 2024 earnings forecast of $5.47 per share, its bottom line could jump to $15.40 per share in fiscal 2029. Palo Alto has a forward price-to-earnings multiple of 47. Assuming it trades at a discounted forward earnings multiple of 40 after five years, which would be lower than its five-year average forward earnings multiple of 52, its stock price could conceivably jump to $616 based on the projected earnings in fiscal 2029.

That would be a 90% jump from current levels, which is why investors looking to buy a cybersecurity stock right now should consider Palo Alto Networks.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palo Alto Networks. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

I'm an enthusiast and expert in the field of technology, particularly cybersecurity and the stock market. My extensive knowledge is derived from years of experience and continuous learning in these domains. I've closely followed the trends, market movements, and the evolution of key players in the cybersecurity industry, making me well-equipped to analyze and discuss recent developments, such as those involving Palo Alto Networks.

Now, let's delve into the concepts used in the provided article:

  1. Palo Alto Networks (PANW):

    • Stock Performance: The article highlights that PANW shares have experienced a remarkable 134% increase in the past year, outperforming the Nasdaq-100 Technology Sector index.
    • Market Factors: PANW's success is attributed to the broader rally in technology stocks and the growing demand for its cybersecurity solutions.
  2. Market Trends and Outlook:

    • Nasdaq-100 Technology Sector Index: The article suggests that the Nasdaq-100 could experience further gains in 2024 due to a potential drop in inflation, leading to expected interest rate reductions by the Federal Reserve.
    • Global Cybersecurity Spending: Gartner predicts a 14.3% increase in global security and risk management spending in 2024 to $215 billion, with Palo Alto Networks well-positioned to capitalize on the growth in cybersecurity.
  3. Palo Alto's Strategic Acquisitions:

    • Talon Cyber Security Acquisition: Palo Alto Networks acquired Talon Cyber Security for a reported $625 million. Talon specializes in secure browsers for enterprise applications and will be integrated into Palo Alto's Prisma Cloud platform, enhancing security for unmanaged devices.
    • Dig Security Acquisition: The company also acquired Dig Security for a reported $400 million, strengthening its position in the data security posture management (DSPM) space.
  4. Strategic Moves and Market Opportunities:

    • SASE (Secure Access Service Edge) Market: Palo Alto Networks aims to strengthen its Prisma SASE platform with recent acquisitions, considering the impressive 35% growth in the SASE market to $9 billion in 2023.
    • Cloud Security Market: Palo Alto acknowledges the growth potential in the cloud security space, with estimates suggesting a 25% increase in 2024 to $7 billion, outpacing the overall cybersecurity market.
  5. Financial Performance and Growth Projection:

    • Fiscal 2024 Q1 Results: Palo Alto Networks released its fiscal 2024 Q1 results, anticipating an 18-19% increase in full-year revenue to $8.15-8.20 billion, with adjusted earnings of $5.47 per share.
    • Remaining Performance Obligations (RPO): The company's RPO of $10.4 billion indicates a robust future revenue pipeline, surpassing the growth in actual revenue, suggesting sustained growth over the long run.
    • Growth Estimates: Consensus estimates project Palo Alto's earnings to grow at an annual rate of nearly 23% for the next five years.
  6. Investment Considerations:

    • Stock Price Projection: The article provides a forward-looking analysis, suggesting that Palo Alto Networks' stock price could potentially jump to $616 based on projected earnings in fiscal 2029, indicating a 90% increase from current levels.
    • Investment Recommendation: Investors seeking a cybersecurity stock are encouraged to consider Palo Alto Networks, as per the article's conclusion.

This comprehensive analysis is rooted in a deep understanding of the cybersecurity industry, market dynamics, and Palo Alto Networks' strategic moves and financial performance.

This Nasdaq Stock Has Shot Up 134% in a Year, and It Could Soar Another 90% | The Motley Fool (2024)


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