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Expect PANW to Make a Big Post-Earnings Move

By Matt McCallAug 25, 2017

Palo Alto Networks (PANW) has a history of making big moves after reporting earnings, but unfortunately not always in the same direction. The stock rallied 17% the day following the latest release, and it was down 24% after the one prior. With its next set of quarterly numbers scheduled to be released on August 29, many investors are trying to determine which direction the move will take this time.

To help figure that out, let’s break PANW down using my three-pronged approach.

We’ll start with the technicals. Palo Alto’s chart isn’t overly impressive since the shares gapped up on the last report, and since then the stock is down 5% and has been struggling to gain any sort of momentum. In fact, it remains 13% below its price prior to the post-earnings weakness two quarters ago.

Now there’s no question PANW is in a NexGen sector – cybersecurity. However, the stock has been unable to form a longer-term uptrend and has actually found itself in a downtrend since the third quarter of 2015. The NASDAQ is up over 20% in this time period.

Cybersecurity stocks as a whole have lagged the market, and PANW is not alone in underperforming. The good news is that at some point the sector will be able to find its footing, allowing stocks like Palo Alto to once again lead the pack.

Fundamentally, management expects to continue growing earnings at an above-average pace, and based on fiscal-year 2018 estimates the stock trades with a P/E ratio of 39.9. Its PEG ratio is 1.63. The fundamentals are slightly above the market overall, so I don’t consider PANW a must-buy at this time. In fact, even when earnings are added into the mix the stock will remain unattractive.

Finally, the intangibles, or the catalysts that will drive the company in the future. These are actually in favor of Palo Alto over the long term because demand for the sector’s products will remain and even continue to grow. However, until the group can turn things around on the chart, there is increased risk in this stock.

Wall Street is looking for earnings of $0.79 a share in the upcoming report, and while I can’t guess where the company’s numbers will come in or how the stock will react, one thing I would bet on is that a big move is coming. Unfortunately, the risk is too great to bet on that being to the upside.

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