Palo Alto Networks shares fell by -1.4% Friday, and are now trading at a price of $182.46. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Palo Alto Networks, Inc. provides cybersecurity solutions worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Palo Alto Networks has a trailing 12 month P/E ratio of 2606.6 and a P/B ratio of 75.7.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
Palo Alto Networks's PEG ratio is 1.51, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
