Palo Alto Networks is the IBD Stock of the Day as the cybersecurity leader's shares bounce off the 10-week moving average and forge a new entry point. PANW stock jumped 111% in 2023, a move that has some analysts questioning its valuation.
On the stock market today, shares rose 3.8% to close at 300.42. With the gain, PANW stock cleared its 21-day line and broke a short downtrend.
IBD research has found that companies that find support at the 21-day exponential moving average tend to outperform. PANW stock holds an entry point of 292 — just above the 21-day line.
Also, PANW stock hit a 52-week high of 318 on Dec. 14. At the time, the market cap of PANW stock topped $100 billion. Palo Alto Networks was the first cybersecurity firm to reach that milestone.
PANW Stock: Acquisition Spree
Shares sold off in late 2023. PANW stock now holds a market cap of $91 billion.
With roots in the "firewall" network security market, Palo Alto built a broad cloud-based security platform with acquisitions. Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps.
The company has spent over $4 billion buying startups over the past five years. Through acquisitions, Palo Alto Networks has expanded into endpoint security and other areas. Endpoint tools detect malware on laptops, mobile phones and other devices that access corporate networks.
While growth in the firewall market has slowed, analysts expect growth in new cloud-based products and services. One growth market is Secure Access Service Edge, or SASE.
With more business apps and workloads running on distributed cloud platforms, instead of on-premises data centers, security has become more challenging. SASE offers a fast and cost-effective way of securing an organization's network.
Analysts also expect upside from Palo Alto Networks' cloud-based security operations center, which detects and responds to computer hacking incidents.
Artificial Intelligence Push
The company rolled out the XSIAM (extended security intelligence and automation management) cloud platform in October 2022 and recently announced an upgrade.
In August, Palo Alto Networks told Wall Street analysts that it had over $200 million in sales bookings for XSIAM products. The cloud platform competes with older security information and event management, or SIEM.
Palo Alto has been upgrading the threat analytics platform with generative artificial intelligence tools. Gen AI tools reduce the time to detect and respond to many forms of computer hacking. Also, they help companies deal with a shortage of security computer engineers.
"We think PANW is best positioned among the pure-play security vendors to deliver AI-driven security automation," said Morgan Stanley analyst Hamza Fodderwala in a recent note.
One overhang for PANW stock: Palo Alto Network faces increased competition from Microsoft, analysts say.
In its fiscal first quarter 2024, which ended Oct. 31, Palo Alto reported earnings and revenue that topped Wall Street targets, but billings growth missed. Billings are a sales growth metric. Billings guidance for the current January quarter and fiscal 2024 fell short of estimates.
Cybersecurity Stock In S&P 500
Raymond James analyst Adam Tindle in December downgraded PANW stock to market perform from outperform on valuation issues.
"To be clear, Palo Alto Networks is a great company, technology leader, and execution has been stellar," he said in a report. "However, we believe the risk/reward in the stock is becoming less favorable."
Further, IBD's Computer-Software Security group ranks No. 5 out of 197 industry groups IBD tracks.
In the network firewall market, Palo Alto competes with Fortinet, Cisco Systems, Check Point Software Technologies and others.
PANW Stock: Technical Ratings
Further, the cybersecurity stock holds a perfect IBD Composite Rating of 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Meanwhile, PANW stock has an Accumulation/Distribution Rating of A-. 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 X, formerly called Twitter, @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
