Palo Alto Networks is the IBD Stock of the Day ahead of the cybersecurity firm's fiscal second-quarter earnings report on Feb. 22. PANW stock climbed back above its 50-day moving average on Wednesday, a bullish signal.
Palo Alto stock trades about 7% below an entry point of 572.77. Shares fell 1.3% to close at 527.75 on the stock market today.
When it reports later this month, analysts estimate profit of $1.64 per share for the period, up nearly 6%, with revenue growing 25% to $1.28 billion.
With earnings for the three months ending Jan. 31 due in less than two weeks, investors may want to be cautious. One trading strategy for investors heading into company earnings reports is using call options.
Palo Alto Network's roots are in the network firewall market. There, it competes with Fortinet, Cisco Systems, Check Point Software Technologies and others. Check Point and Fortinet have already reported solid fourth-quarter earnings.
PANW Stock Builds Cloud Platform
Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps. However, Palo Alto Networks has expanded beyond firewall products and built a cloud computing-based services platform through acquisitions.
The cybersecurity firm has spent roughly $3.46 billion on acquisitions since 2018. Its strategy of selling a broader suite of cybersecurity products has gained traction, PANW stock analyst Adam Tindle of Raymond James said in a recent note to clients.
Palo Alto Networks as of Oct. 31 had 1,025 customers that generated more than $1 million in revenue bookings over the past four quarters, up from 792 customers a year earlier.
"This suggests incrementally more committed customers and a stickier cash-flow stream," Tindle said in the report.
He added: "This creates a flywheel for core firewall product revenue growth over time as refresh cycles for these customers may favor PANW — and suggests synergies between Palo's high-growth software business and its core firewall business."
New CEO Starts Acquisition Spree
In June 2018, Palo Alto brought in a new chief executive to make strategic changes. The new CEO, Nikesh Arora, was a former top executive at Alphabet's Google and at SoftBank Group.
Through acquisitions, Palo Alto Networks has expanded into endpoint security and vulnerability management. Endpoint tools detect malware on laptops, mobile phones and other devices that access corporate networks.
In addition, Palo Alto Networks has pushed into a market called Secure Access Service Edge, or SASE. The security tools support distributed workers and branch offices.
Further, the IBD cybersecurity group that includes PANW stock ranks a solid No. 68 out of 197 industry groups tracked.
Palo Alto Stock Composite Rating
Meanwhile, Palo Alto stock holds an IBD Composite Rating of 94 out of a best possible 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
PANW stock has an Accumulation/Distribution Rating of B-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
If you're new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns in securities such as PANW stock is one key to investment guidelines.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
