It's Time to Buy Palo Alto Networks Shares Again
Shares of cybersecurity company Palo Alto Networks (PANW) - Get Report have declined 28% year to date, and falling from around $135 to $114 since I recommended taking profits on June 9.
The stock now looks like it may have fully consolidated on the downside and has risen 10% from its lows. It's now time to play the potential move back above $130.
Take a look at the chart below, courtesy of TradingView.
Palo Alto Networks stock closed Tuesday at $126.89, down 0.88%. The stock is down 28% year to date, including 8.7% declines over the past three months. This compares with a 5.29% year-to-date rise in the S&P 500 (SPX) index, which has gained 4.39% over the past three months.
Despite the underperformance in Palo Alto Networks, the risk-vs.-reward scenario is once again favorable, thanks to its recent decline. Though the stock has bounced off the $114 low reached on June 27, it's still 6% below my sell recommendation on June 9, which we exited with a 10% gain.
Why buy now?
Two reasons. First, the stock has shown that is has some level of support around the $114 to $117 area (green line), bouncing off of that level twice in the past two weeks. Secondly, thanks to the 10% rise off the recent low, the stock has just reclaimed the 20-day moving average ($124.55 -- blue line) and trending higher toward resistance at $129.86 (thin red line).
While a move to $130 would only translate to a rise of 2.45%, the stock by that time would intersect with the 50-day average at $132.91 (pink line). Once that happens, $130 then becomes support, not resistance. This means buying the stock could make more sense than being out of it, especially with the shares still down some 37% from the 52-week high of $200.55.
The bet is that following the recent decline to around $114, there are now more net buyers than sellers. We can play the rise back towards the June 9 exit point of around $137, betting on an 8% rise from current levels heading into the company's earnings report next month.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.