Why Palo Alto Networks Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of network security specialist Palo Alto Networks (NYSE: PANW  ) sank 10% today after its quarterly revenue disappointed Wall Street.

So what: Palo Alto's fourth-quarter earnings managed to top estimates, but revenue growth of "only" 88% -- compared to 100%-plus growth in the three previous quarters -- is triggering concerns over slowing growth going forward. Of course, given the stock's big run leading up to the earnings release, it's no surprise that investors are choosing to take some profits off the table.

Now what: Management now sees current-quarter adjusted EPS of $0.03 on revenue of $80 million to $84 million, versus Wall Street's estimate of $0.03 and $80 million, respectively. "Our unique and innovative approach to network security resonates with enterprises around the world as they look for ways to protect their networks and safely enable the explosion of application use driven by productivity trends in cloud computing, SaaS, mobility and social networking," said CEO Mark McLaughlin. With Palo Alto still trading at a very wide price-to-sales premium to fierce rivals like Check Point Software and Cisco Systems, however, I'd wait for a larger margin of safety before buying into those tailwinds.

Interested in more info on Palo Alto Networks? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of Cisco and Check Point. Motley Fool newsletter services have recommended buying shares of Check Point. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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