Palo Alto Networks (NYSE:PANW) is one of the leading names in the cybersecurity sector. So far in 2022, PANW stock is performing “less bad” than other tech stocks. It’s down about 10% while the Nasdaq index is down over 20%.
Palo Alto is a legacy cybersecurity company that came to prominence in the era of firewalls. But the company is making a successful pivot into the cloud era. And that is reflected in the company’s steadily growing revenue. But it’s not showing up on the bottom line. This has some investors rightfully concerned. Nevertheless, investors don’t have to look too carefully to see reasons why PANW stock may be a risk worth taking.
|PANW||Palo Alto Networks, Inc.||$493.04|
Stable, if Not Growing Revenue
Palo Alto Networks has delivered six consecutive quarters of growing revenue. And with revenue of $3.96 billion through the first three quarters of the company’s fiscal year, it’s easily on pace to pass the $4.2 billion level it reached in fiscal-year 2021.
This is good news and bad news for investors. Growing revenue confirms Palo Alto is successfully adding customers and continuing to retain its existing base. Since the company uses a subscription model, investors can expect the trend to continue.
On the other hand, it forces investors to focus that much harder on the company’s bottom line. And when they get there, it’s natural to have some concerns. Even as the company continues to grow its revenue, profit seems elusive.
Is Palo Alto Done With its Growth Through Acquisition Strategy?
As I noted above, Palo Alto is not a cloud native business. To facilitate its ability to compete in the cloud security era, the company went on an acquisition spree. Two notable acquisitions were its buyout of Bridgecrew in 2021 and its buyout of Crypsis Group in 2020.
Recently, I listed Palo Alto on a list of cybersecurity stocks to buy. I believe the company when it says it’s done acquiring companies for now.
One Analyst Believes Profitability is Imminent
If the company’s appetite for acquisition is suppressed, then I put more stock in what Morgan Stanley (NYSE:MS) had to say. Analyst Hamza Fodderwala had a bullish outlook on PANW stock that is due in large part to his belief that Palo Alto will be profitable in the next couple of quarters. If that were to occur, Fodderwala concludes that PANW stock is likely to get included in the S&P 500 index, which is historically a bullish catalyst for stocks.
Should You Buy PANW Stock?
In a bear market, Palo Alto doesn’t fit the criteria for stocks that I’m personally looking to invest in. I’m looking for proven dividend stocks and PANW stock doesn’t make that list.
However, if you have an appetite for risk, Palo Alto may present an interesting opportunity. Even if the economy tips into a recession, the company will continue to generate revenue. If that revenue is accompanied by profitable earnings, then PANW stock is likely to move higher.
It’s true that analysts’ price targets are likely to come down. So, investors should look at the 40% upside with healthy skepticism. But if you’re a risk-tolerant investor looking for stocks to put on your bear market watchlist, Palo Alto Networks deserves your attention.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.