Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Palo Alto Networks Should Be on Your Radar

By Matthew Frankel, CFP® - Updated Jun 25, 2021 at 2:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is this cybersecurity giant a good stock to buy now?

When it comes to cybersecurity stocks, there are certainly some interesting new companies to consider, but maybe one of the long-established players in the space could be the best way to go. In this Fool Live clip, recorded on May 28, Fool analyst Tim Beyers and Chief Growth Officer Anand Chokkavelu discuss Palo Alto Networks (PANW -0.50%) and why it should be on investors' radar.

Tim Beyers: Palo Alto started as a hardware company. It did what FireEye (MNDT 0.07%) couldn't do and what Fortinet (FTNT -2.01%) has yet to do: It built around a next-generation firewall and just started surrounding it with all the relevant products that you could build into a platform.

I think Palo Alto Networks may be one of the most remarkable companies I've ever seen. It is the Salesforce (CRM -0.54%) of digital security. What I mean by that is Salesforce is a mutant company in how it's been able to acquire businesses and then create compounded value from those acquisitions. That's really rare. Palo Alto has done the same thing but in digital security.

Where its sweet spot is, in a company like ours, where we are like, "Look, we're not going to ditch all of the on-premise stuff we've built over 28 years. We're going to bring in cloud stuff, but we've got some stuff, and so we want you to be able to help us with things like a firewall." We have bought Palo Alto Networks firewall hardware, and then we have Palo Alto Networks software and services.

It is a really unique model whereby they do a lot in the cloud, they still sell some hardware, but it's the minority of their business now. They are primarily like, "Hey, give us your use case. Here are all the things that we can do and the platform that we've built. Where can we plug in for you?" It works, it's a really great model and they are growing at a decent clip because that model works so well.

Because as much as I believe in Jay Chaudhry and I believe in Zscaler (ZS -1.63%), there are always, always, always going to be companies that are not going to go all cloud. That is always going to happen. As long as that's true, you have this alternative called Palo Alto Networks.

It is a really well-constructed, really well-run business, Anand. I think it gets far less love than it deserves. Which is a little bit surprising to me, but maybe it shouldn't be, because it doesn't scream cloud, it screams 20th century, but it's not. It's not. It's a really misunderstood business.

Anand Chokkavelu: Yeah. I think we might be stepping on a question in the future, but we're talking about competitors. Five of the seven -- so Palo Alto didn't name itself, and I think maybe FireEye didn't -- but all the others named Palo Alto Networks as a competitor.

Beyers: Of course, they did.

Chokkavelu: No other company got that love.

Beyers: Yeah. Of course, they did.

Chokkavelu: Whatever.

Beyers: That's because Palo Alto Networks is arguably -- and it is arguable -- the most complete security platform available today. But I don't want to say that to somehow diminish Zscaler. It doesn't. Zscaler has built ecosystems around its core products and it's doing really well. It has a cloud-native alternative to what Palo Alto is doing. But I think those two are on a pretty direct collision course.

Chokkavelu: In terms of that valuation we're talking about, all of them except FireEye, which is only like $5 billion, all the others are in the $20-some billion to the $40-some billion range in market cap. Palo Alto Networks is at $35 billion. That's got the lowest price the sales other than FireEye, just nine times price to sales, and it grows at 22% this past year which compared to the eye poppers is lower, but this have been proven over a longer period of time.

Beyers: Still very significant. Absolutely. It's got a lot of good products, it's got good leadership. This is always just a checkbox for me, but if our security team tells us they're making really good stuff, I pay attention. That's what our security team says: They're making really good stuff. If I hear that from somebody whose job it is to actually spend money on security, I pay attention.

Anand Chokkavelu, CFA owns shares of Salesforce.com. Matthew Frankel, CFP has no position in any of the stocks mentioned. Tim Beyers owns shares of Salesforce.com. The Motley Fool owns shares of and recommends Palo Alto Networks, Salesforce.com, and Zscaler. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Palo Alto Networks, Inc. Stock Quote
Palo Alto Networks, Inc.
PANW
$525.11 (-0.50%) $-2.66
Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$190.02 (-0.54%) $-1.04
Fortinet, Inc. Stock Quote
Fortinet, Inc.
FTNT
$52.99 (-2.01%) $-1.08
Mandiant, Inc. Stock Quote
Mandiant, Inc.
MNDT
$22.88 (0.07%) $0.01
Zscaler Stock Quote
Zscaler
ZS
$178.75 (-1.63%) $-2.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.