Palo Alto Networks stock forecast: Will it test new highs?
Shares of Palo Alto Networks, a US-based cybersecurity company, hit an all-time high of $551.18 at the end of November 2021. Will the rally continue or is a correction overdue?
As of 15 December, the company had a market capitalisation of $50.56bn, according to CompaniesMarketCap.
Let’s take a look at how the stock has performed year-to-date and over the past five years, and consider key factors to build a plausible PANW stock forecast for 2022-2025.
PANW stock analysis: How has it performed in 2021?
Palo Alto Networks stock has climbed around 45% on a year-to-date basis, given the work-from-home trend and concerns over cybersecurity.
According to Deloitte’s survey: “As the economy becomes increasingly digital, the growing cyber threat is outpacing most companies’ ability to manage it effectively.”
Palo Alto’s key cybersecurity solutions and innovations across three major platforms – Network Security, Cloud Security and SOC Security – suggest the company is well-positioned.
According to the Analyst Day presentation, as of 13 September 2021, the company more than doubled its major product releases in 2021 compared to 2019. For the same period, the number of $1m+ accounts grew from 542 to 921, while the number of $10m+ accounts increased from 18 to 43.
PAWN stock reached an all-time high of $551.18 on 29 November. It was $512.5 at close on 14 December, having lost 7% of its gains since its peak.
A look at Palo Alto Networks’ historical prices over the past five years shows that the stock gained 296%.
Palo Alto Networks fundamental analysis: Latest earnings
Palo Alto Networks incurred losses in the fiscal year ended 31 July 2021 and the first quarter of the fiscal year 2022, which ended on 31 October 2021. An assessment indicates that the company narrowed losses gradually over those periods.
In the three months ended 30 April 2021, the fiscal third quarter 2021, the company posted a GAAP net loss of $145.1m, $119.3m in the quarter ended 31 July 2021 and $103.6m in the quarter ended 31 October 2021, indicating narrowing losses.
Revenue has also demonstrated upbeat performance in the last three quarters. Revenue increased 24% year-over-year to $1.1bn in the fiscal third quarter 2021, and added 28% and 32%, on an annual basis, to $1.2bn in each in the two following quarters, respectively.
Addressing the company’s performance in the first quarter of fiscal year 2022, Dipak Golechha, chief financial officer of Palo Alto Networks, said: “The combination of strong top-line metrics, upside to our profitability goals, and cash conversion for Q1 showcase our focus on total shareholder return.”
Finally, for the fourth quarter ending January 2022, or the fiscal second quarter 2022, Palo Alto Networks expects total revenue in the range of $1.265bn to $1.285bn, and total billings in the range of $1.51bn to $1.53bn.
The company also raised its outlook for fiscal year 2022, with expectations of total revenue in the range of $5.35bn to $5.40bn and total billings in the range of $6.675bn to $6.725bn.
Palo Alto Networks stock price drivers: Factors to consider
Given that Palo AltoNetworks primarily offers cybersecurity products and services, it is reliant on its customers’ use of personal computers, internet-based applications, and the latest technological breakthroughs in the areas of artificial intelligence, analytics, automation and orchestration.
Work- from-home trend, and rising cybersecurity issues
Ever since the pandemic struck in the first quarter of 2020, companies have made working from home a necessity. This has led to a rise in cyber attacks.
The trend led to an increase in demand for cybersecurity services. This demand is expected to continue, with the global cybersecurity market size forecast to grow to $345.4bn by 2026, according to a report compiled by Statista.
Increasing global reach with Nasdaq-100 listing
Palo Alto recently joined the Nasdaq-100 index, which comprises the top 100 largest domestic and international non-financial companies on the NASDAQ exchange, based on market capitalisation. The stock was added as part of the index's annual reconstitution. The inclusion will be effective from 20 December 2021.
According to Arora, the stock’s inclusion in the Nasdaq-100 affirms the company’s “transformation into the cybersecurity partner of choice for organisations worldwide”.
Factors likely to drag the Palo Alto Networks stock
Strong focus on acquisition may impact cash flow
The company’s strategic and strong focus on acquisitions to transform itself into a security platform from a firewall provider could impact its free cash flow, which gives an overview of the company’s financial health.
According to market researcher Tracxn, Palo Alto Networks has made a total of 17 acquisitions, the latest being Bridgecrew, which it acquired in February 2021, and the takeovers of Sinefa and Expanse in November 2020.
The company’s acquisition-related costs in the fiscal year ended 31 July 2021 stood at $46.1m, climbing from $15.7m in the previous fiscal year. The adjusted free cash flow margin was in the range of 32% to 33% in the quarter ended October 31, 2021.
Strong Competition from peers
Palo Alto Networks faces competition from other key players in the cybersecurity market such as Cisco.
Cisco isn’t a complete cybersecurity company. Its main business is in manufacturing and marketing networking equipment. Despite offering cybersecurity services as its secondary service, Cisco’s security business is the leading rival to Palo Alto, followed by Fortinet and CheckPoint, according to Gartner.
Palo Alto Networks stock forecast: Analyst sentiment
Commenting on the short-term Palo Alto Networks stock predictions, David Jones, Chief Market Strategist at Capital.com, said:
Looking forward into 2022 and beyond, analysts shared different PANW stock price targets.
According to the data compiled by MarketBeat, as of 15 December 2021, out of 31 analysts covering the stock, 28 rated it a ‘buy’, two a ‘hold’ and a ‘sell’.
The consensus 12-month PANW stock price target was $576.52 a share, representing a 12% upside potential based on the closing price of 512.5, as of 14 December 2021. The stock projection varied from the low of $350 to the high of $675.
According to the algorithmic forecasting of Wallet Investor, as of 15 December 2021, Palo Alto Networks’ share value could move sideways for the rest of the year, trading at $512.805 on 28 December 2021.
The same provider expected the PANW stock to reach $680.663 by the end of 2022, $818.786 by the end of 2023 and hit 1097.990 by the end of 2025. According to its 5-year forecast, the stock could trade at 1,229.010 in December 2026.
GovCapital was also bullish in its PANW stock predictions, expecting the share price to reach $818.923 by the end of 2022, $1,188.776 by the end of 2023 and break through $2,000 in 2025, hitting $2,079.595 by the end of that year.
When looking for Palo Alto Networks stock forecasts, it’s important to bear in mind that analysts’ projections and price targets can be wrong. Analysts’ PANW stock predictions are based on making fundamental and technical studies of the stock’s performance. Past performance is no guarantee of future results.
It’s important to do your own research. Always remember that your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio, and how comfortable you feel about losing money. And never invest more than you can afford to lose.
Is Palo Alto Networks stock a good investment?
Whether PANW stock is a suitable investment depends on your own investment objectives. You should conduct your own research. It’s important to reach your own conclusion on a company’s prospects and the likelihood of achieving analysts’ targets.
Will PANW stock go up or down?
Palo Alto has experienced a strong performance in 2021. PANW stock has risen 45% on a year-to-date basis (as of 15 December), driven by the work-from-home trend and cybersecurity concerns.
Still, a number of factors dictate whether stock prices rise or fall, including issues with the company and broader macro-economic factors. There are no guarantees. Markets are volatile. You must make your own assessment of the PANW stock, taking in such things as the environment in which it trades and your risk tolerance.