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If you are looking for the best ideas for your portfolio you may want to consider some of RiverPark Advisors top stock picks. RiverPark Advisors, an investment management firm, is bullish on Palo Alto Networks Inc (NYSE:PANW) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Palo Alto Networks Inc (NYSE:PANW) stock. Palo Alto Networks Inc (NYSE:PANW) is a cybersecurity company.
In July 2019, RiverPark Advisors had released its Q2 2019 investor letter. The investment firm said that Palo Alto Networks Inc (NYSE:PANW) stock was one of the top detractors to the Large Growth fund's performance in Q2 2019. Palo Alto Networks Inc (NYSE:PANW) stock has posted a return of 17.2% in the trailing one year period, outperforming the S&P 500 Index which returned 10.7% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Palo Alto Networks Inc (NYSE:PANW) stock has risen by 5.0%.
In Q2 2019 investor letter, RiverPark Advisors said the Large Growth fund posted a return of 7.4% in the second quarter of 2019, outperforming fund's benchmark the S&P 500 Index which returned 4.3% in the same period. Let’s take a look at comments made by RiverPark Advisors about Palo Alto Networks Inc (NYSE:PANW) stock in the Q2 2019 investor letter.
"Palo Alto Networks: PANW shares declined 16% for the quarter on what we believe to be a misunderstanding of the company’s 13% total billing growth for its fiscal third quarter (which some investors found disappointing). As PANW shifts its billings to one-year cloud deals (from longer-term non-cloud deals), we believe the appropriate measure for assessing the company’s progress is short-term billings, which grew a healthy 25% year-over-year. Additionally, the company reported better-than-expected revenue (up 28%) and non-GAAP EPS (up 26%), as well as strong fourth quarter guidance for 21-22% revenue growth.
Palo Alto is a leader in the large and growing $19 billion IT infrastructure security market. The company benefits from two secular trends – the migration to the cloud and the transition to SaaS models. Formerly a hardware-based solutions company, PANW now also offers software solutions independent of its hardware, allowing customers to use them on internal cloud deployments as well as on the large public cloud providers like Amazon, Google and Microsoft. This SaaS offering is now the company’s fastest growing segment (subscription revenue grew 35% for the latest quarter). PANW’s significant technical differentiation, including having opened its dataset to customers and allowing them to write security applications to take advantage of Palo Alto Network’s deep database of trillions of security artifacts, has led to market leadership and continued outsized market share gains.
The secular trend for cybersecurity plus PANW’s leading position and SaaS model has led to impressive customer growth (62,000 customers in F3Q19, up 22% year-over-year) and accelerating revenue growth (28% in 2017, 29% in 2018, and 30% for the trailing twelve months) at high gross margins (77% in 3Q19) and high operating margins (21% in 3Q19). Due to its SaaS model, which results in deferred revenue, but current expenses, we focus on the company’s Adjusted Free Cash Flow margin, which is both high at 38% (3Q19), and rising, up from 22% in 2014. We took advantage of the market sell-off in the fourth quarter (in which PANW shares were off more than 30% from their recent high) to initiate a small position and additionally increased our position during the quarter. PANW is a core holding in the Fund."
In Q2 2020, the number of bullish hedge fund positions on Palo Alto Networks Inc (NYSE:PANW) stock increased by about 9% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Palo Alto Networks' growth potential. Our calculations showed that Palo Alto Networks Inc (NYSE:PANW) isn't ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.