My BIL works on Wall Street and will occasionally tell me “buy X stock.” At Easter last year he blessed me with a “Buy PANW” conversation. Since then, I’ve been buying between $500-1,000 worth of PANW stock each month. So with that said, I have a $8k cost basis position in the stock, and am currently up 79%. ~~I might be biased~~ nvm I am biased with this stock, however, there hasn’t been much buzz around the stock on Reddit so I wanted to see what other people thought about the stock..
PANW is a multinational cybersecurity company. According to Wikipedia, the core product is a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. The company serves over 70,000 organizations in over 150 countries, including 85 of the Fortune 100.
Their 2024 Q2 results come out on Feb 20th but as of October 2023 here were their numbers:
||10/31/2023|Annualized|10/31/2022|
|:-|:-|:-|:-|
|Total Revenue|$1.878 billion|$7.512 billion|$1.563 billion|
|Cost of Revenue|$473 million|$1.892 billion|$462 million|
|Gross Profit|$1.405 billion|$5.624 billion|$1.102 billion|
|||||
|R&D|$410 million|$1.64 billion|$372 million|
|Sales, G&A|$781 million|$3.124 billion|$715 million|
|Operating Income|$215 million|$860 million|$15 million|
|||||
|Net Income|$194 million|$776 million|$20 million|
Just taking a basic look at these, we see PANW is growing revenues at a good rate, but it’s also hyper profitable from a cost of revenue perspective. Their cost of revenue is very low and their gross profit margins are high. For a growing company, this is awesome. They also are increasing R&D while G&A expenses aren’t growing at the same rate, but even with these growing costs, they are still making money and making money at a faster rate.
Heading this growth is Nikesh Arora. Now I’ll say this, I didn’t really know who this guy was before I started looking into this, but after reading up on him, he was a senior executive at Google and formerly the president and COO of Softbank (pre pandemic). He’s also got a great reputation as a leader and innovator. The only trickle down methodology i believe in is when you have good leadership.
Also, I don’t know how to add pictures but if you take a look at their BOD you can’t look at James Goetz and tell me he might not be a super genius based off the size of his head. [https://www.paloaltonetworks.com/about-us/management](https://www.paloaltonetworks.com/about-us/management)
Jokes aside, the biggest red flag with this stock is their valuation. A company doing less than $10 billion in sales and hovering around net income of $1 billion is valued at a whopping $114 billion. For comparison, Cisco is a big competitor to PANW and their 2023 revenue was $57 billion, net income: $12.6 billion, and market cap of $202 billion. Needless to say, PANW is heavily overvalued currently.
Moving forward, the cybersecurity sector is rapidly growing and there is room for PANW to keep growing with it. Do you see this stock flopping? Do you see it 2x, 5x, 10x in the coming decade? Would love to hear people’s thoughts. As for me, I’ll keep buying each month until the numbers stop showing huge growth.
