Is Palo Alto Networks the Best Cybersecurity Stock to Buy Now?

The need for top-notch cybersecurity solutions has never been clearer. Recent stats show a worrying trend; cyberattacks jumped by 30% globally in Q2 2024 compared to the same time last year. That means organizations are dealing with an average of 1,636 attacks every single week. 

And if that weren't enough for enterprises to worry about, CrowdStrike (CRWD) - a big name in the cybersecurity world - suffered a major outage of its own on July 19. One of their software updates went live with a bug, causing some serious disruptions for airlines, banks, and even hospitals around the globe. 

As you might have heard, CrowdStrike's stock took a nosedive on the news - and the negative headlines continue to roll in, with CRWD down another 9% this past Tuesday on reports that Delta Air Lines (DAL) plans to seek compensation for damages.

On the flip side, cybersecurity rivals like Palo Alto Networks (PANW) actually rose on the charts, as businesses and investors started rethinking their internet safety choices. 

It's worth pointing out here that most analysts are still very much in CrowdStrike's corner, as the stock has a consensus “Strong Buy” rating and a price target that now implies 61% upside, following the recent price collapse. But for investors eyeing the Delta headlines and wondering how much more fallout might be yet to come, it's worth taking a closer look at close competitor PANW right now.

PANW's Market Performance

Palo Alto Networks (PANW), a leading provider of comprehensive cybersecurity solutions, has been generating attention in the tech sector due to its remarkable stock performance, boasting a market capitalization of $102.8 billion. The company's offerings span network security, cloud protection, and advanced threat detection. 

PANW stock is up by 30.7% over the past 52 weeks, and the shares have gained just over 10% so far in 2024.

One sticking point for many analysts and investors is that PANW's valuation metrics indicate a premium pricing. Currently, PANW is trading at approximately 58 times forward earnings and has a price-to-sales (P/S) ratio of 13.23. But while these figures are higher than the broader market average, these steep valuations aren't particularly unusual in the cybersecurity space. In fact, just one day prior to CRWD's massive snafu, both stocks were downgraded at Redburn Atlantic over valuation concerns.

That said, at current levels, PANW's valuation is more attractive than CrowdStrike, which trades at a forward P/E of about 64x and a P/S ratio of 15.62x. This suggests that, despite its high absolute valuation, PANW offers relatively better value compared to some other cybersecurity stocks.

The financials further underscore PANW's strong performance. CEO Nikesh Arora has expressed satisfaction with the company's platformization strategy, which has been well-received by customers. In the fiscal third quarter of 2024, Palo Alto reported revenue of $1.98 billion, a 15% increase from $1.72 billion in Q3 FY 2023. Net income also notched a significant jump, reaching $278.8 million compared to $107.8 million in the same quarter the previous year. Additionally, GAAP earnings per share rose from 31 cents to 79 cents. These figures highlight the company's ability to generate substantial growth and profitability, reinforcing its market leadership.

PANW Pioneers AI-Powered Cybersecurity Solutions

Palo Alto Networks is making significant strides in the cybersecurity landscape, leveraging strategic partnerships and innovative technologies to stay ahead of the curve. One of the most notable moves is its collaboration with IBM (IBM). This partnership aims to enhance PANW's security platforms with IBM's advanced artificial intelligence (AI) capabilities, a move that includes the acquisition of IBM's QRadar SaaS assets to bolster PANW's Cortex XSIAM platform. 

In addition to this strategic partnership, PANW has rolled out a suite of new security solutions designed to protect enterprises from AI-generated attacks and secure AI ecosystems. These offerings, powered by PANW's proprietary Precision AI, combine machine learning, deep learning, and generative AI to provide real-time security and enhanced protection against sophisticated threats. The new products include AI Access Security, AI Security Posture Management (AI-SPM), and AI Runtime Security, all aimed at enabling companies to adopt AI safely and securely.

PANW's commitment to innovation is further evidenced by its substantial investment in research and development, which accounts for over 20% of its sales. This focus on R&D not only solidifies PANW's leadership in the cybersecurity domain, but also ensures that it remains at the forefront of technological advancements in the industry. 

On the global front, PANW has expanded its footprint by establishing a new cloud location in Indonesia. This move is designed to offer regionally-hosted cloud-based cybersecurity solutions that meet local regulatory requirements. This strategic expansion not only supports data residency needs, but also enhances PANW's ability to serve a growing market in Southeast Asia.

What's the Analyst Forecast for PANW?

The broader analyst community has a favorable view of PANW, with an overall rating of “strong buy.” Out of 44 analysts offering recommendations, 30 rate the stock as a “strong buy,” two as a “moderate buy,” and 12 as a “hold.”

The mean target price is $342.39, implying expected potential upside of approximately 5.4% from the current price. The Street-high target of $390 suggests the stock could rally up to 20%.

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PANW: Buy or Skip?

So, is Palo Alto Networks the best cybersecurity stock to buy now? In a nutshell, yes - but with some caveats. The company's strong financials, solid growth strategy, and favorable analyst outlook make it an attractive investment opportunity. 

But - and it's a big but - the stock is pricey, and the potential for substantial upside appears limited without any significant short-term catalysts. Longer term, though, if you're looking for a reliable and long-term investment in cybersecurity, Palo Alto Networks is definitely worth considering. With the increasing demand for robust cybersecurity solutions and the company's strong market position, PANW is likely to continue outperforming in the future.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.