Stock splits are all the rage this year, as some of the largest technology companies in the U.S. sought to make their stock prices more accessible to retail investors. When purchasing a single share in a company costs hundreds or even thousands of dollars, it can be a hurdle for those looking to make lower-level purchases and/or those without access to fractional shares.
While a stock split doesn't add any intrinsic value to the company executing it, creating the potential to attract new investors is a positive. Since the Nasdaq-100 technology index is currently trading in a bear market with a year-to-date loss of 27.1%, the little things can make all the difference.
The most recent stock split in the tech sector was completed by cybersecurity powerhouse Palo Alto Networks (PANW 4.19%). Its 3-for-1 split went into effect on Sept. 14, tripling the number of its shares in circulation and shrinking its price per share proportionally, from $548.88 to $183.75. While that alone isn't a reason to buy the stock, Wall Street is incredibly bullish on the company.
Stock splits: why they're popular
With its stock split, Palo Alto joined a high-profile club. Electric vehicle maker Tesla completed a 3-for-1 split in August, and both Amazon and Google parent company Alphabet completed 20-for-1 splits in the months prior to that.
Here's why that's big news for smaller investors. Purchasing a single share in each of the above companies before they split cost:
- Palo Alto Networks: $548
- Tesla: $891
- Amazon: $2,447
- Alphabet: $2,235
That's a total of $6,121. With the stock splits in effect, an investor can now buy one share in each of the four companies for a grand total of just $702. Of course, that investor owns a smaller slice of each company, but the point is that gaining exposure to these high-quality stocks is now far less cost-prohibitive.
Palo Alto Networks: a cybersecurity giant
Cybersecurity rapidly evolved over the last couple of decades to adapt to how companies now do business. It used to be as simple as installing security software to protect local networks. However, with the onset of cloud computing technology, companies now run more of their operations online, meaning the attack surface ballooned in size.
Palo Alto operates three main segments: enterprise security, cloud security, and security operations. Remarkably, 50% of the Forbes Global 2,000 companies use a product from all three categories. Palo Alto points to a number of factors driving take-up, including work-from-home being an ongoing trend (requiring more secure cloud networks) and regulators more harshly scrutinizing companies' commitments to cybersecurity, particularly when handling consumers' personal data.
This evolution has led to an acceleration in Palo Alto's revenue growth -- an impressive feat for a company of its size.
But the future might be even brighter because Palo Alto grew its remaining performance obligations (RPOs) by a whopping 40% in the fourth quarter of fiscal 2022 to $8.2 billion. RPOs are expected to eventually convert into revenue, signaling that faster growth could be on the horizon.
Wall Street is bullish on Palo Alto stock
The Wall Street Journal tracks 36 analysts covering Palo Alto Networks stock. Of the group, 29 (80%) gave it the highest possible buy rating. Of the remaining seven, two have an overweight rating (bullish), and five are neutral -- not a single analyst recommends selling.
Beyond Palo Alto's stellar operating performance, analysts are generally quite bullish on the cybersecurity industry as a whole -- and for a good reason. Wall Street investment bank Morgan Stanley recently surveyed top corporate Chief Information Officers, who voted cybersecurity the least likely cost they'd cut back on even in a recession.
Businesses large and small will continue shifting their operations online, so cybersecurity is an inevitable expense for the majority of them. While Palo Alto isn't the only provider growing at a strong pace despite the broader economic slowdown, it's a global leader and one of the highest-quality picks for investors seeking industry exposure.
