Palo Alto Networks (PANW -3.04%) inventory has delivered respectable features of 30% to date this yr, which is commendable contemplating that it began the yr on a detrimental observe and crashed huge time in February after releasing its quarterly outcomes.
Investors had been promoting the inventory in droves at the moment because the cybersecurity specialist reduced its full-year guidance. Nonetheless, the inventory has been recovering in current months, and the corporate’s newest quarterly outcomes point out that it might be able to ship extra features to traders.
Palo Alto launched its fiscal 2025 first-quarter outcomes (for the three months ended Oct. 31) on Nov. 20. The corporate’s numbers had been forward of consensus estimates, and it additionally raised its steerage for the total yr. Moreover, administration introduced a 2-for-1 ahead stock split, which can go into impact on Dec. 12.
Let’s take a more in-depth take a look at Palo Alto’s newest quarterly efficiency and whether or not it is smart for traders to purchase the inventory proper now.
Key metrics recommend Palo Alto’s shifting in the suitable route
Palo Alto’s fiscal Q1 income improved 14% yr over yr to $2.14 billion, whereas non-GAAP internet revenue jumped 13% to $1.56 per share. Analysts had been searching for $1.48 per share in earnings on income of $2.12 billion.
Palo Alto rounded off its market-beating efficiency by elevating its steerage. It now expects full-year earnings to land between $6.26 per share and $6.39 per share, in comparison with the sooner vary of $6.18 per share to $6.31 per share. And it sees income rising by 14% in fiscal 2025 on the midpoint, in comparison with the sooner expectation of 13.5%. The complete-year income steerage of $9.12 billion to $9.17 billion is greater than analysts’ expectations of $9.13 billion.
The corporate’s stronger-than-expected earnings report and improved full-year steerage may be attributed to the wholesome demand for its cybersecurity platform. Palo Alto administration factors out that prospects are signing larger offers with the corporate.
As an example, the variety of buyer accounts spending greater than $1 million on Palo Alto’s cybersecurity platform elevated 13% yr over yr within the earlier quarter to 305. The rise in buyer accounts with transactions of greater than $5 million elevated at a larger tempo of 30% to 60. Palo Alto attributes this improve in deal sizes to the rising adoption of cybersecurity platforms that combine a number of instruments right into a single providing.
Palo Alto CEO Nikesh Arora remarked on the newest earnings conference call that the corporate’s “strategy is to ingest all related safety knowledge as soon as, sew and analyze this with precision AI expertise, and natively automate end-to-end workflows.” It is price noting that Palo Alto has been upgrading its product portfolio to resolve artificial intelligence (AI)-related use instances. Administration factors out that it’s securing greater than 750 AI-specific purposes, a quantity that it says will continue to grow.
The great half is that Palo Alto’s AI-specific merchandise generated annual recurring income of $250 million within the first quarter of fiscal 2025, which interprets into an annual run charge of $1 billion. It will not be stunning to see this quantity head greater sooner or later. The adoption of AI within the cybersecurity market is predicted to develop at an annual charge of just about 21% between 2024 and 2032, producing annual income of $121 billion on the finish of the forecast interval.
Palo Alto, due to this fact, is in line to make the most of a large alternative that might assist speed up the corporate’s development in the long term. The great half is that the corporate’s remaining efficiency obligations (RPO) certainly recommend that it has a brighter future. This metric refers back to the complete worth of an organization’s contracts that might be fulfilled sooner or later, and it elevated by 20% in fiscal Q1 to $12.6 billion.
The quicker development within the RPO in comparison with the precise income bodes effectively for Palo Alto, because it factors towards sustained and wholesome development going ahead. Furthermore, Palo Alto estimates that it may finish fiscal 2025 with a 19% to twenty% improve in RPO, to $15.2 billion to $15.3 billion. Once more, that may be quicker than the estimated development within the firm’s high line.
Is the inventory price shopping for after its current rally?
Palo Alto Networks inventory has jumped 46% since hitting a 52-week low on Feb. 21. The inventory is now buying and selling at 50 occasions trailing earnings because of this rally. That is costly when in comparison with the tech-laden Nasdaq-100 index’s trailing price-to-earnings ratio of 33. Nonetheless, the nice half is that Palo Alto’s bottom-line development is predicted to enhance.
Analysts forecast a 12% improve within the firm’s backside line to $6.35 per share this yr. The chart beneath tells us that it may ship quicker development over the subsequent couple of years.
PANW EPS Estimates for Next Fiscal Year knowledge by YCharts.
Nonetheless, do not be stunned to see Palo Alto clocking quicker earnings development sooner or later because of its robust income pipeline, and the bigger offers the corporate is signing that might assist it cut back buyer acquisition prices and enhance margins. Development traders can nonetheless contemplate shopping for shares of Palo Alto, as a possible enchancment in its development charge may assist justify its valuation.