Investors Still Overpaying for Palo Alto Networks Inc (PANW)

Bigger and slower competitors

The two companies specifically called out in the earnings call were Check Point Software Technologies Ltd. (NASDAQ:CHKP) and Juniper Networks, Inc. (NYSE:JNPR). Both companies have substantially higher market caps in the range closer to $10 billion with substantially higher revenue bases. While competitors have other product lines, both have considerably lower growth allowing Palo Alto Networks Inc (NYSE:PANW) to take market share. Juniper Networks, Inc. (NYSE:JNPR) is only expected to grow 3% this year while Check Point Software Technologies Ltd. (NASDAQ:CHKP) is forecasted to hit 4.4% growth.

At this point, the competitors aren’t building the products that would be a threat to Palo Alto, but that fear should always be a concern for investors willing to pay up for this stock. Both companies have substantial cash balances to launch an attack any day so investors need to be diligent.

Bottom line

With the revenue miss and growing market share faster than the firewall market growth rate, investors should be concerned whether enough growth exists for this company to support this market valuation. Even with the 11% selloff the following day, the stock of Palo Alto Networks Inc (NYSE:PANW) continues to trade at a market cap of $3.7 billion or nearly 9 times the current revenue run rate. The company remains a market leader, but investors shouldn’t be willing to pay up for the stock.

Based on these valuations, investors are still overpaying for Palo Alto Networks Inc (NYSE:PANW) even at the closing price for the week that was down nearly 6 points. The company needs a year of strong growth to grow into this valuation before investors should consider a position.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Check Point Software Technologies Ltd. (NASDAQ:CHKP). The Motley Fool owns shares of Check Point Software Technologies Ltd. (NASDAQ:CHKP).

The article Investors Still Overpaying for Palo Alto Networks originally appeared on Fool.com.

Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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