Investors are taking a cautious stance on Palo Alto Networks Inc (NASDAQ: PANW) this morning, even though the cybersecurity firm reported better-than-expected results for its fiscal Q3.
According to Nikesh Arora, the third quarter was “phenomenal” for PANW given the challenging macroeconomic environment.
In his interview with Jim Cramer, the company’s top executive also said the cybersecurity industry is at an “inflection point” as businesses continue to integrate AI into their operations.
Arora was particularly bullish about Palo Alto Networks’ artificial intelligence-enabled security operations platform, Cortex XSIAM, which he dubbed a “game changer” for the industry, adding it’s growing at a faster pace than any other product in the company’s history.
Despite today’s decline, Palo Alto Networks shares are up more than 20% versus their YTD low.
Why is Palo Alto Networks’ stock down on Wednesday?
Despite upbeat results and positive commentary, Palo Alto Networks stock is inching down in pre-market primarily because of two reasons.
First is the company’s gross margin, that printed at 76% in the first quarter, missing Street estimates by about 120 basis points.
Additionally, the multinational left its full-year guidance unchanged due to an uncertain macro environment.
US tech stocks, particularly ones with a higher price-to-earnings ratio like PANW, often need a “beat and raise” to push meaningfully up following earnings release.
Note that Palo Alto Networks does not currently pay a dividend, either, to keep investors interested.
So, are PANW shares worth buying on post-earnings decline?
Famed investor Jim Cramer sees a post-earnings decline in PANW shares as a buying opportunity since nothing in the earnings release signalled structural weakness or fundamental concerns.
In his latest report to members of the Investing Club, the former hedge fund manager dubbed Palo Alto Networks a best-of-breed name for exposure to cybersecurity that he’s convinced is a secular growth market.
Cramer tagged cybersecurity a “never-ending arms race” since cyberattacks occur irrespective of what’s happening with the broader economy.
So, businesses can’t afford the luxury of delaying spending on defence.
According to the Mad Money host, investors should load up on Palo Alto Networks stock on the post-earnings weakness as it offers best-in-class tools and an excitingly broad product portfolio that makes PANW a one-stop shop for cybersecurity solutions.
How high could Palo Alto Networks go in 2025?
Jim Cramer expects Palo Alto Networks stock to hit $225 by the end of this year, primarily because it remains fully committed to “platformization”.
PANW offers a wide range of cybersecurity products that enable customers to shop for everything they need at Palo Alto Networks instead of switching vendors for different solutions.
This helps the Nasdaq-listed firm expand its market share, secure bigger deals, and generate higher annual recurring revenue per customer.
Note that Wall Street agrees with Cramer’s positive view on Palo Alto Networks shares as well.
The consensus rating on the cybersecurity stock currently sits at “overweight” with the mean target of $214, indicating potential upside of more than 15% from here.
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