Palo Alto May Actually Be Underrated For Once

As a value investor, it’s almost painful to write this, but it looks as though Palo Alto Networks (PANW) may be a bargain when Check Point (CHKP) is not. Although I expect quite a bit more growth from Palo Alto, sales missteps and increased competition from Check Point, Cisco (CSCO), and Fortinet (FTNT) seem to have pushed Palo Alto down to a more interesting valuation even after a significant recovery from the lows earlier this year.

There are, of course, plenty of risks in the security market as enterprise customers try to figure out how to navigate the new cloud-filled landscape, but the basic underpinnings of IT demand seem sound, and Palo Alto has shown that it can combine technical excellence with strong marketing. If my model is in the ballpark, and Palo Alto can generate low-to-mid teens long-term growth in sales and adjusted FCF, a fair value in the $150s seems quite reasonable, with upside if/when the company can reassure the Street that its growth credibility remains intact.

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Palo Alto May Actually Be Underrated For Once