Palo Alto Networks Inc (PANW)’s Steadily Gaining Respect

Likewise, Palo Alto invested in several product development and sales improvement initiatives; sales and marketing expenses grew by $3.6 million. These increases took product margin down a bit to 73.4%, which is down 10 basis points year over year and 80 basis points sequentially. But management warned the Street in the first quarter of product gross margin fluctuations due to new product releases. In this case it was the launch of the PA-3000 series security hardware, which bought in higher cost of goods sold.

Moving forward
Palo Alto showed tremendous growth. Although profitability is not where investors would like it to be, it seems silly to worry about this operational aspect today. Aside from the PA-3000 launches, Palo Alto has been actively ramping up its hardware and software, including an updated operating system called PAN-OS 5.0 that was released last November. This arrived in addition to a VM-series that integrates with VMware, Inc. (NYSE:VMW)‘s the vSphere.

However, the Street chose to focus on guidance, which wasn’t that bad relative to expectations. The company is projecting third-quarter revenue in be in the range of $100 million to $104 million. This represents growth of 52% to 58% year over year, while projected non-GAAP earnings per share of $0.05. This assumes continued investments for growth and market share.

The company continues to raise the bar and is among a small group (which includes Aruba Networks, Inc. (NASDAQ:ARUN)) that is well positioned to outperform for many years to come. Consequently, Palo Alto should attract a lot of attention as an acquisition target. I still place Cisco at the top of my list of suitors. I would be surprised if this company is still operating as an independent in 12 months. To that end, I would be buying this stock on any sign of weakness.

The article Palo Alto’s Steadily Gaining Respect originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Check Point Software Technologies, Cisco Systems, and VMware. The Motley Fool owns shares of Check Point Software Technologies and VMware.

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