With a daily gain of 15.17%, a 3-month gain of 10.53%, and an Earnings Per Share (EPS) of 0.63, Palo Alto Networks Inc (PANW, Financial) appears to be performing well. But the question is, is the stock Modestly Overvalued? This article aims to provide a comprehensive valuation analysis of Palo Alto Networks (PANW). Let's delve into the financials.
Company Overview
Palo Alto Networks is a platform-based cybersecurity vendor with product offerings covering network security, cloud security, and security operations. The California-based firm boasts over 85,000 customers globally, including more than three fourths of the Global 2000. With a current stock price of $241.49 per share and a market cap of $73.90 billion, we compare this to the GF Value, an estimation of fair value, to assess the company's valuation status.
Understanding GF Value
The GF Value is a unique measure that provides an overview of a stock's intrinsic value. It's calculated based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our analysis, Palo Alto Networks (PANW, Financial) appears to be modestly overvalued. This suggests that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Before investing in a stock, it's crucial to assess the company's financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial health. Palo Alto Networks has a cash-to-debt ratio of 1, ranking below 66.22% of 2750 companies in the Software industry. This gives Palo Alto Networks a financial strength score of 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Palo Alto Networks has been profitable 0 times over the past 10 years. The company had a revenue of $6.50 billion and an Earnings Per Share (EPS) of $0.63 in the past twelve months. Its operating margin is 2.3%, ranking below 50.63% of 2720 companies in the Software industry. This gives Palo Alto Networks a profitability rank of 4 out of 10, indicating poor profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Palo Alto Networks is 22.1%, ranking better than 77.19% of 2389 companies in the Software industry. However, the 3-year average EBITDA growth rate is -17.4%, which ranks worse than 80.6% of 1990 companies in the Software industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) provides insight into its profitability. For the past 12 months, Palo Alto Networks's ROIC is 0.83, and its WACC is 9.66.
Conclusion
In summary, Palo Alto Networks appears to be modestly overvalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 80.6% of companies in the Software industry. To learn more about Palo Alto Networks stock, you can check out its 30-Year Financials here.
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