It hasn't been a great afternoon session for Palo Alto Networks investors, who have watched their shares sink by -2.6% to a price of $209.6. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Palo Alto Networks's P/B and P/E Ratios Are Higher Than Average:
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 317.6 and a P/B ratio of 51.97.
Palo Alto Networks's PEG ratio is 1.49, 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.
Increasing Revenues but Narrowing Margins:
| 2019-09-09 | 2020-09-04 | 2021-09-03 | 2022-09-06 | |
|---|---|---|---|---|
| Revenue (MM) | $2,900 | $3,408 | $4,256 | $5,501 |
| Gross Margins | 72.1% | 70.7% | 70.0% | 68.8% |
| Operating Margins | -1.9% | -5.2% | -7.2% | -3.4% |
| Net Margins | -2.82% | -7.83% | -11.72% | -4.85% |
| Net Income (MM) | -$82 | -$267 | -$499 | -$267 |
| Net Interest Expense (MM) | -$84 | -$89 | -$163 | -$27 |
| Depreciation & Amort. (MM) | -$154 | -$206 | -$260 | -$283 |
| Earnings Per Share | -$0.29 | -$0.92 | -$1.73 | $0.66 |
| EPS Growth | n/a | -217.24% | -88.04% | 138.15% |
| Diluted Shares (MM) | 284 | 291 | 289 | 306 |
| Free Cash Flow (MM) | $1,187 | $1,250 | $1,619 | $2,178 |
| Capital Expenditures (MM) | -$131 | -$214 | -$116 | -$193 |
| Net Current Assets (MM) | -$1,341 | -$2,834 | -$4,960 | -$5,629 |
| Current Ratio | 1.78 | 1.91 | 1.31 | 1.39 |
| Long Term Debt (MM) | $1,430 | $3,084 | $3,226 | $3,677 |
| LT Debt to Equity | 0.9 | 2.8 | 5.08 | 17.51 |
Palo Alto Networks has growing revenues and increasing reinvestment in the business and a pattern of improving cash flows. Additionally, the company's financial statements display wider gross margins than its peer group and a strong EPS growth trend. However, the firm suffers from consistently negative margins with a negative growth trend and high levels of debt. Finally, we note that Palo Alto Networks has just enough current assets to cover current liabilities.
