Palo Alto Networks is the IBD Stock of the Day as the cybersecurity stock forges a new buy point. With acquisitions, Palo Alto has expanded into cloud computing products and services, boosting PANW stock.
Many cybersecurity firms still garner most revenue from on-premise products. Palo Alto's growth is coming from customers that access cybersecurity products and services remotely via the internet.
Shares in Palo Alto jumped in late February on fiscal second-quarter earnings that trounced views, helped by what are known as next-generation cloud products. Also, a shift toward higher-margin, subscription-based recurring revenue has buoyed Palo Alto stock.
In addition, Palo Alto has been improving cybersecurity products with artificial intelligence tools, along with rival CrowdStrike Holdings. Palo Alto and CrowdStrike are among AI stocks to watch. Further, PANW stock belongs to the IBD Leaderboard.
PANW Stock: Volume Higher On Up Days
On the stock market today, Palo Alto stock was up a fraction at the close to 189.43. The cybersecurity stock has climbed 35% in 2023 versus the Nasdaq's 12% gain.
Amid the consolidation of PANW stock, it has forged an entry point of 192.94 at the top of a newly formed handle.
Palo Alto stock recently found support at its 21-day exponential moving average. IBD research has found that with the biggest stock market winners, they tend to find support at the 21-day after a breakout for at least several weeks.
Since January, volume has been higher on days that the cybersecurity stock traded up. That's a bullish signal.
Also, PANW stock trades above its 50-day moving average.
Cybersecurity Group Ranking
One bearish signal is that the IBD Computer-Software Security group ranks only No. 100 out of 197 industry groups tracked.
But analysts view Palo Alto stock as a good candidate for inclusion in the S&P 500 at some point, which would be a catalyst for the stock.
Palo Alto's fiscal second-quarter earnings for the period ended Jan. 31 rose 81% year over year to $1.05 per share on an adjusted basis. Including acquisitions, revenue rose 26% to $1.7 billion. Analysts expected earnings of 78 cents a share on sales of $1.65 billion.
Palo Alto Network's roots are in the network firewall market. There, it competes with Fortinet, Cisco Systems, Check Point Software Technologies and others.
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.
"Palo Alto is in an enviable position to consolidate security spend at the platform level, something we think most vendors can't accomplish," RBC Capital analyst Matthew Hedberg said in a recent note to clients.
PANW Stock: 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. Further, Palo Alto uses Google's cloud computing infrastructure.
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.
"Expanding from being a best-of-breed firewall, Palo Alto has built platforms around network security, cloud security, and security operations," Raymond James analyst Adam Tindle said in a recent note. "With firewall demand naturally slowing (but still having refresh), we see secure access service edge (SASE) as the largest opportunity in network security, with a mostly greenfield opportunity and deals multiples larger than firewall behind a fully trained sales team."
The cybersecurity firm has spent roughly $3.46 billion on acquisitions since 2018. Even so, Palo Alto still has the financial muscle for more acquisitions or to repurchase its own shares. It had over $6.1 billion in cash on its balance sheet at the end of its last quarter.
Palo Alto Stock Technical Ratings
"PANW clearly possesses the strongest array of cloud assets among traditional network security vendors," Mizuho Securities analyst Gregg Moskowitz said in a recent note.
Meanwhile, the cybersecurity stock holds an IBD Composite Rating of 99 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.
Further, PANW stock has an Accumulation/Distribution Rating of A-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.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
