Palo Alto Networks Inc (PANW, Financial) has recently seen a daily loss of -3.14%, and a 3-month loss of -5.24%. With an Earnings Per Share (EPS) (EPS) of 1.26, the question arises - is the stock modestly overvalued? This article provides an in-depth analysis of the company's valuation and financial performance to answer this question. Read on to understand the intrinsic value of Palo Alto Networks (PANW).
Introduction to Palo Alto Networks
Palo Alto Networks is a platform-based cybersecurity vendor with a diverse product range that includes network security, cloud security, and security operations. Based in California, the company boasts more than 85,000 customers worldwide, including over three-fourths of the Global 2000. With a current stock price of $232.36 and a GF Value of $200.45, Palo Alto Networks (PANW, Financial) is believed to be modestly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, 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.
For Palo Alto Networks (PANW, Financial), the GF Value suggests that the stock is modestly overvalued. With a market cap of $71.70 billion at its current price of $232.36 per share, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of Palo Alto Networks
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, one must review a company's financial strength before purchasing shares. Factors like the cash-to-debt ratio and interest coverage can provide valuable insights. For Palo Alto Networks, the cash-to-debt ratio is 1.05, ranking worse than 65.09% of 2753 companies in the Software industry. However, its overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth of Palo Alto Networks
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Palo Alto Networks has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $6.90 billion and Earnings Per Share (EPS) of $1.26. Its operating margin is 5.62%, which ranks better than 58.16% of 2751 companies in the Software industry. However, the overall profitability of Palo Alto Networks is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Palo Alto Networks is 19.8%, ranking better than 73.59% of 2412 companies in the Software industry. The 3-year average EBITDA growth rate is 131.4%, ranking better than 98.66% of 2009 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) can provide insights into its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Palo Alto Networks's ROIC is 1.99, and its WACC is 10.31.
Conclusion
Based on the analysis, Palo Alto Networks (PANW, Financial) stock appears to be modestly overvalued. While the company's financial condition is fair, its profitability is poor. However, its growth ranks better than 98.66% of 2009 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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