Shares of Palo Alto Networks Inc. (NYSE:PANW) dropped 12.7% in the month of November, according to data provided by S&P Global Market Intelligence, after the next-gen network security company followed a strong quarterly report with weaker-than-expected forward guidance.
More specifically, the bulk of last month's losses came the day after Palo Alto's Nov. 21 report. In that report, Palo Alto told investors quarterly revenue grew 34% year over year, to $398.1 million, while adjusted net income increased 66.2%, to $51.2 million, or $0.55 per share. For perspective, Palo Alto's revenue was slightly below the midpoint of its guidance, which called for $396 million to $402 million, net income was well above guidance for adjusted earnings per share of $0.51 to $0.53.
Palo Alto CEO Mark McLaughlin stated, "Our first-quarter 2017 results underscore that our Next-Generation Security Platform uniquely solves customers' most complex security challenges. [...] As a result, customers and prospects globally are adopting our platform at high rates."
McLaughlin also gave a nod to revenue coming in near the lower end of guidance. But he insisted that wasn't due to declining demand or competitive concerns, but rather the fact that Palo Alto is increasingly winning larger deals. And as the dollar value of these opportunities increases, so too does the length of sales cycles required for them to be approved by purchasers.
So while win rates remain high, Palo Alto has seen some of its larger deals temporarily pushed back. And its guidance reflects as much; for the current quarter, Palo Alto sees revenue of $426 million to $432 million, with adjusted earnings per share of $0.61 to $0.63. The midpoints of both ranges were well below consensus estimates at the time of the report.
In the end, though, it seems the market is wrongly viewing Palo Alto Networks through a short-term lens. And I think the stock currently offers a fantastic buying opportunity for investors willing to take advantage of this pullback.