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Palo Alto Networks, Inc. Message Board

  • eyesandears51 eyesandears51 Oct 16, 2012 3:47 PM Flag

    PANW: Impressive Growth Prospects, Rich Valuation, Large Secondary Overhang, Challenges to IP.

    PANW has impressive growth in a rapidly expanding market segment, security based on real time in depth traffic, application and user visibility. These are the positives that are already baked into this richly valued stock price 156x forward PE, and 7.3x 5 year PEG. Consequently, failure to exceed quarterly reporting wisper numbers will likely result in significant share price decline. 4.8 million shares newly released from lockup and being sold via secondary this week, materially increases the stock float and will exert downward pressure on stock price in the near future. Lastly, Juniper Networks is challenging in court, 5 key patents that form the basis of Palo Alto's intellectual property and market differentiation. Juniper has already received a favorable ruling in one case. Until reolved or settled this leaves a cloud of uncertainty over the stock. Taken together this is an impressive long term value with some very considerable near term concerns.

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    • Yellow caution sign. Fact PANW stock is down by a meaningful 4.36% today, on very high trend confirming volume, precipitated in part by disappointing guidance and another lockup expiration. Let’s do a deeper dive….how did that growth set up for future profitability? Year over Year Gross Margins were down 70 basis points, OPEX grew 78%, including a worrisome 69%% rise in G&A,YOY total operating loss increased to
      -$ 2.613 million from +$ .424 million. The bottom line is that revenue is projected to increase, but does not scale readily into future profitability.

      Stock technical’s are pointing to frothiness, the RSI is telegraphing an over bought condition, the stock crossed below the 20 day SMA and is close to the 50 day RMA, the stochastic’s are pointing to caution. Additionally PANW has a very high 5 year PEG ratio of 6.97, anything over 2 signal’s excessive valuation. The company also has a very high 12.9% short percentage of float, 10% is considered by many to be the threshold for a potential “ battleground stock “ The concern is confirmed by high insider selling, by five corporate officers, including CEO Mark D. McLaughlin , and CFO Steffan C. Tomlinson.

      Lastly, many expect the market to pullback by 5-10% sometime between now and the replay of the Washington DC double feature thriller horror movie " Sequestration " at the beginning of March, and US Government Debt Extension II March 27. A low beta stock could expect to experience a ratable retrenchment, higher beta issues have exaggerated movements up in good times and down during pullbacks. Put in context, during the last confrontation over the sequester in November, PANW dropped from $ 57.03 November 1 to $ 50.01 November 16, not sustainable surpassing $ 57.03 until February 22.

      Conclusion, PANW is a quality high growth company with strong mid/long term share appreciation potential, however at current price levels the 30-45 day risk/return is disproportionately negative. Adding to position’s after a price pullback, precipitated either by a normal market correction or sequester/debt expiration inspired retrenchment, suggests a buying range closer to the $ 50.60-$ 51.78, offers a better return with lower risk.

    • Very well stated and I am in total agreement.

      Sentiment: Strong Sell

      • 1 Reply to A Yahoo! User
      • Permalink,
        News out today raises additional caution signs, network security leaders FTNT, and CHKP are down 19% and 13% respectively today, after both reported unimpressive results and weak guidance. FIRE is also down over 9%. CHKP has a strategic partnership with PANW and all these firms are in a related ecospace. I am confident that the insiders selling pricing 4.8 million shares today and selling them tomorrow are counting on the hype, backing, and momentum of PANW.

 
PANW
127.43+1.44(+1.14%)Dec 26 4:03 PMEST

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