This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Palo Alto Networks' Coast Is Not Clear

NEW YORK ( TheStreet) -- Wall Street has a funny way of being "conveniently cautious" in the way it evaluates growth stories. While some companies can seemingly do no wrong, even amid poor profits, as long as revenue remains impressive, others find themselves in the proverbial "doghouse" with one false move. And this seems to be the case with enterprise security company Palo Alto Networks (PANW - Get Report), whose stock has been down by as much as 30% since a brutal May quarter.

Although the shares have rebounded slightly, up 14% over the past three months, Palo Alto has lost 35% of its value over the trailing 12 months. On Monday, however, following a better-than-expected fourth-quarter performance, during which revenue soared 49% year-over-year, investors received a glimpse of the promise that once elevated Palo Alto to "darling" status. But does it mean everything is back to "normal?"

[Read: <a target="blank" data-add-tracking="true" href=""><em>5 Earnings Short-Squeeze Plays</em></a>]

I'm not saying that 49% growth is not impressive. I've followed this company long enough to know that growth has never been the problem. You see, when compared to larger rivals like Cisco (CSCO) and Fortinet (FTNT), Palo Alto does more than hold its own in terms of technology. In fact, I believe the company has pioneered -- what I believe to be -- next-generation security. Nonetheless, the company's ability to grow profits remains a concern.

So although the stock is up slightly following Monday's fourth-quarter report, I can't say that earnings-per-share of 6 cents (excluding costs), which was in-line with estimates, is all that impressive. Plus, let's not forget that Palo Alto management had issued brutal guidance in the May quarter, which sent the stock tumbling down 15%, fueling merger and acquisition discussions.

Essentially, even with the downbeat guidance issued in May, that the company only managed to meet lowered expectations should be reason for some anxiety, if not outright concern. I don't want to overstate what this means, especially since Palo Alto is still a relatively young company. But on the heels of a profit miss in the May quarter, a meaningful sequential improvement would have gone a long way to keep the bears at bay.

[Read: <a target="blank" data-add-tracking="true" href=""><em>Tesla's Run May Be Stalling Out</em></a>]

Another issue is Cisco, which recently picked off anti-hacking giant Sourcefire (FIRE) in a $2.7 billion deal. To be brief, it was an expensive transaction that values Sourcefire at 12 times revenue. Not strapped for cash, Cisco could afford some luxuries. But this deal wasn't just about extravagance. Cisco is going after Palo Alto's market position. For that matter, I don't believe either Fortinet or Check Point (CHKP) are safe.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
PANW $185.91 2.03%
AAPL $117.81 -0.19%
FB $105.45 0.04%
GOOG $750.26 0.28%
TSLA $231.61 0.86%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs