Here's Why Palo Alto Networks Stock Will Head Even Higher

NEW YORK (TheStreet) -- Palo Alto Networks (PANW) was a solid buy before it reported earnings Wednesday night, and it remains a buy because this stock is headed still higher.

The stock surged Thursday after the Santa Clara, Calif.-based cybersecurity and antihacking company reported that its adjusted earnings grew more than 100% in its fiscal third quarter. Palo Alto Newtorks also predicted its revenue for the current quarter would be greater than what Wall Street analysts were expecting.

This suggests PANW stock, which is up 36% so far this year, won't get any cheaper. As long as Palo Alto continues to grow its adjusted profits at nosebleed rates, the stock will remain hot.

What's more, the company just announced that it was adding to its arsenal of services by picking off CirroSecure, which specializes in securing software-as-a-service applications.

CirroSecure provides the "foundation of a new service to be launched in the fall" for the SaaS market, said Palo Alto Networks CEO Mark McLaughlin.

This acquisition makes sense on multiple levels. Aside from giving Palo Alto another strong revenue stream for the years ahead, Palo Alto also get a competitive advantage in the fast-growing cloud market, where rivals such as FireEye (FEYE) and Fortinet (FTNT) have begun to plant their flags.

SaaS, a means of delivering applications over the Internet, will become a boon for business looking to save money. These applications, often referred to as Web-based software or on-demand software, will need to be secure. This means businesses will require sophisticated threat detection/prevention that will keep hackers and cyberthieves away.

Because of its technologies, which include Web filtering and application control features designed to prevent hackers from accessing computers remotely, Palo Alto continues to enjoy extraordinary demand. And that demand was evident during the third quarter as the company's profits showed strong acceleration.

During the quarter, Palo Alto delivered adjusted earnings per share (excluding one-time items) of 23 cents. Not only did that beat the average forecast of analysts by 3 cents, it also marked a year-over-year jump of 109%.

This means Palo Alto's adjusted profits have accelerated for the third straight quarter. They increased 90% year over year in the fiscal second quarter and 88% and 83%, respectively, in two quarter before that.

Top-line growth wasn't shabby, either. Revenue climbed 55% year over year to $234.2 million, topping consensus estimates of $223 million. Revenue was driven by Palo Alto having added "well over 1,500 new customers" during the quarter, according to McLaughlin. This means Palo Alto now has more than 24,000 customers using its products and services.

Just as impressive, during the quarter, Palo Alto added more than 1,000 new subscribers to its WildFire service, meaning its total now stands at more than 6,000 customers, translating to a 200% year-over-year climb.

What does this all mean? Palo Alto Networks' stocks still has plenty of room to rise. In the wake of the earnings news, Wall Street analysts scrambled to raise their price targets for the stock.

And with the company forecasting fiscal fourth-quarter revenue in the range of $252 million to $256 million, above the consensus of $247.6 million, investors should not wait for these shares to get cheap before they buy.

Want to secure profits in your portfolio for the years ahead? Own this company.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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