Why Palo Alto Networks Left Investors Unimpressed

By Motley Fool Staff Markets Fool.com

From theMotley Fool Moneyshow, Chris Hill and Jason Mosertake a quick look atPalo Alto Networks (NYSE: PANW), which has traded down about 25% since reporting its fiscal second quarter results at the end of February.

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A full transcript follows the video.

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This video was recorded on March 3, 2017.

Chriss Hill: Palo Alto Networksisin the business of cyber security. Second quarterrevenue came in at a record $422 million, andWall Street was so impressed, shares ofPalo Alto Networks fell nearly 25% this week. What happened, Jason?

Jason Moser: I think this is one of the moredifficult markets in which to invest. I think it's really tough tonot only identify the winners in cyber security,but then to understand why they can do it sustainably. For me,there are a lot of reasons why Ilook at this and take a pass. I think with Palo Alto,the fact of the matter is that sales are slowing downconsiderably. We have a stockthat has been trading at, really some highvaluations there. And even after the sell-off here, it's still at 46 times non-GAAPnumbers for 2017. You have to lob up those growth rates. If you don't lob them up, themarket is going to punish you, and that's what's happened here today.

It's based on morecompetition in the space, it'sbased on the fact that the customers aredeliberating a little bit more about what they want to spend and with whom. Youcombine that all together and the sell-off makes sense. That's not to say that Palo Alto is not good at what they do. But again,investors need to identify why they're so good at it, andis it something they can do on a sustainable basis? Itsounds like, today, there's somecompetition out there that's giving them a run for their money.

Chris Hill has no position in any stocks mentioned. Jason Moser has no position in any stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.