Is Palo Alto Networks' Moat in Threat?

The cyber security space is a rapidly growing market, which is why the firms in the industry are currently focusing on growing market share at the cost of profits. Due to the massive potential of the industry, shares of cyber security firms are practically never low-priced excluding when they either blow up or mature. No one has ever alleged Palo Alto Networks’ (PANW) shares of being on sale or an abundant bargain. On the basis of traditional metrics, Palo Alto Networks is one of the most extremely valued cyber security stocks. By comparison, Fortinet is cheaper but has also seen slower growth.

Palo Alto Networks has grasped one of the utmost positions in the Gartner Enterprise Firewall analysis since the group was started in 2013.
Palo Alto Networks till now has not accomplished non-GAAP profits and on existing situations that achievement should not be anticipated in the near-term. However, the company’s non-GAAP profits are rising very swiftly with recent estimates shouting for non-GAAP earnings per share of $1.67 in the prevailing fiscal year, a surge of $0.81 compared to a year-ago period.

Palo Alto Networks has created a platform that unites the three foremost components of a security stack nowadays—Next Generation Firewall, Threat Intelligence Cloud and Progressive Endpoint protection. The thing that makes Palo Alto Networks different from other companies is that all of its functionality was natively created on a platform that permits the company’s appliance to provide highly automated protective measures.

Palo Alto Networks’ foremost rivals like Check Point and Cisco have a massive investment in legacy technology, and it is highly likely that lots of consumers will carry on to purchase legacy technology for years to come because they too have lots of legacy technology organized. Mostly, users do not prefer replacing what they have already paid for, but the users who have grieved substantial economic losses mainly due to breach often find themselves in a position to compulsorily purchase the most operative systems, irrespective of the cost.

At present, Palo Alto Networks’ platform holds a leading position in the market, but that does not mean other competitors cannot compete against it. However, it is most likely that the company will endure to relish some definable product benefits in the near future, and will carry on accomplishing the majority of the competitive engagements in which it is tangled.

Final Words

Palo Alto Networks currently has a strong moat and is the leader of the cyber security market. Due to the company’s strong presence, I think it should continue fortifying its position in the market. However, due to its valuation, I don’t think the stock is a compelling buy right now. Investors looking to dip into the sector should wait for Palo Alto Networks to retract before initiating a position in the stock.
Published on Apr 29, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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