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Why Palo Alto Is Oversold

Palo Alto expects Q2 earnings (excluding items) of 4 cents per share on revenue in the range of $94 million. Not only would this represent a 66% jump, but it also exceeds estimates of $90.8 million. Essentially, the company is doing what it has to do to grow and showing the confidence that it has in its business.

Impressively, after (only) two full quarters as a public issue, Palo Alto is still proving that it can deliver the goods. Investors continue to struggle with the investment case. Considering that the company has no debt while sitting on $324 million in cash, it's hard to imagine a better risk/reward situation.

As evident by its growth trend and having what is considered next generation security along with one of the most innovative platforms in the industry, the company has a technology that businesses can't be without. This is why I don't expect Palo Alto to remain an independent much longer -- especially not if the stock keeps falling.

Palo Alto would make an excellent addition to a company such as IBM (IBM - Get Report) or Cisco (CSCO) -- particularly to leverage their existing enterprise offerings. What's more, with Cisco's recent acquisitions as it tries to shore up its cloud strategy, this is one buy that Cisco is certain to make at some point in 2013.

I like Palo Alto's business and I think the stock is oversold -- suffering from investors' expectations that were too high. That said, for patient investors with an appetite for risk, this is a great buy at $49 as the stock has a chance to reach $60 during in the next six to 12 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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