view transcript

Jacob: Palo Alto shares rising on very good earnings. We have Sarge Guilfoyle of our premium sister site, Real Money. Sarge, Is Palo Alto still underpriced to you?

Sarge: Maybe for the long term. I think if you're someone interested in taking down a few shares of Palo Alto, you might wait for a better chance. Myself, I'm short calls that expire tomorrow 217 and a half calls. That's where the stock peaked this morning. When I saw it, how fiercely it was resisted there. I took a little bit of shot. By tomorrow, I'll be out of that position. Then maybe I'll look at going along depending on where the name is,.

Jacob: But what's your biggest concern? I mean, really good quarter, but higher investment, maybe some pressure on free cashflow margins. Is that a concern? What's your biggest concern?

Sarge: Well, they pretty much told you, they're going to take some lumps this quarter there.

Sarge: We just totally laid down 75 million for a startup cloud-based Internet of things type cybersecurity firm. They're going to go through a little bit of something right here, but they telling you that they expect to be able to sustain 20% revenue growth moving forward, that they do think $4 billion have free cash flow is is a reality going out to 2022 so there are reasons that you can believe in them. Personally, I believe that cybersecurity is an area where corporate America has to invest regardless of the economic condition. So not necessarily Palo Alto, but the space probably is more recession resistant than maybe other types of Capex businesses.

Jacob: Longer-term, could you get a sweet deal with Palo Alto where it is in somewhat of a growthy market, but like you said, everyone needs cybersecurity. Maybe we hit a recession soon. I mean, is this a really sweet deal?

Sarge: Listen, for the retail investor, a 210 $215 stock is never an easy purchase because you know, that's why we have a product called socks under $10 because it's more attractive to someone trying to make a few bucks. But I do believe in this space you're going to find stocks that are only overvalued. So when they become more normally valued, that's pretty much when you have to consider them to be fairly valued in terms of the rest of the marketplace. So I do think you want exposure to cyber security. I'm alongside a Zscaler myself. I gave that to a lot of folks. It's been hitting the team. I'll tell you that cause I'm an honest guy. Okay Zscaler hasn't been the one to be in just yet. Maybe I should average down here. I don't know. But Crowdstrike reports tonight, that's another name. Those are cloud-type names. Palo Alto is getting into the more cloud side of the business with this acquisition they made I think it's a good company. I think it's well run. It probably is the pick of the litter, but price, that could be an issue.

Jacob: At what price? You said that you've de-risked a little bit from Palo Alto. It's been up a lot on Thursday. You know, when you go back in, at what price?

Sarge: Well, you're not going to get the prices you could have had last night or the night before. So, I mean, I think if you can get something with a two O in front of it, if you can look at something, I mean 205 , maybe take down in the eighth of a position. You might not get that chance. Maybe you're going to have to do this to a bull call spread or something like that to get your feet in the door. But I always tell the home gamers, the retail investors, start out with an eighth of a position. Decide how much you're willing to invest in a stock and go in increments of eight. You may never get to a full position and that's fine. If you only get to a quarter of position or an eighth of position, then it's a trade. If you're able to beef up and gets to more than five eighths, let's say you have a position, well then, then it's an investment.

New Speaker: Thanks Sarge.

Palo Alto's (PANW - Get Report) strong earnings report got investors a nice gain Thursday, but the stock still could be a buy, according to many market participants and observers. 

The stock rose 6.56% to $213 a share Thursday. 

Palo Alto earned an adjusted $1.47 per share for the quarter, surpassing Wall Street's expectations of $1.42. Revenue was $805.8 million, beating expectations of $803 million. Billings were $1.1 billion, rising 22% year-over-year and beating analysts estimates of $995 million. Management guided for current quarter ranges of revenue of $760 million to $770 million, billings of $875 million to $890 million and EPS between $1.02 to $1.04. 

Analysts see room for 20% growth or more in billings, and a long-term expansion of the free cash flow margin and dollar growth. If there has been one concern on the stock, it's that an additional $120 million or so may be added to capital expenditures for the near-term, putting pressure on the free cash flow margin in the immediate. 

Still, "Maybe for the long-term," the California based cyber security firm is a good buy, Sarge Guilfoyle, contributor on TheStreet's premium sister site RealMoney, said. "Free cash flow is a reality going out to 2022, so there are reasons that you can believe in them. Cyber security is an area where corporate America has to invest regardless of the economic condition... but the space probably is more recession resistant than maybe other types of cap-ex businesses." Guilfoyle isn't adding to his position until the stock potential falls a bit from here. 

Analysts were largely positive after earnings print, and recommend owning the stock even after its Thursday run-up. Morgan Stanley analyst Keith Weiss wrote in a Thursday not that the current valuation of 16 times expected free cash flow for the next year makes a "durable" 20% free cash flow growth rate "not reflected in the shares." JPMorgan analyst Sterling Auty raised his price target to $300 from $270 in a Thursday note, valuing the stock at 21 times 2021 expected free cash flow. 

Palo Alto is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells PANW? Learn more now.

Premium Pick: Choppy Market Action on Hong Kong News

Latest News: Three Things Coca-Cola's Doing Right and What That Means for the Stock

Apple News: Apple's iPhone Launch -- 3 Key Things to Know


Subscribe to our Youtube Channel for more videos : Listen our latest Podcasts on Soundcloud

Catch Up: Today's Top News Videos Below