Investors can be forgiven for treading cautiously when it comes to technology stocks right now. The Nasdaq-100 index, which hosts 100 of the largest tech stocks listed on the Nasdaq exchange, sank 33% in 2022, which has left many portfolios battered and bruised.
But what if that's good news for 2023? See, the Nasdaq-100 almost never falls two years in a row. It has only happened on one occasion -- and that was during the dot-com bust in 2000 to 2002. The index actually tends to soar by an average of 51% in the first positive year following a loss.
Since the Nasdaq-100 is already up 10% year to date in 2023, history might be set to repeat. If it does, cybersecurity giant Palo Alto Networks (PANW +0.91%) could be a big winner on the back of an overwhelmingly bullish consensus among Wall Street analysts.
Here's why it's a buy now, especially for retail investors who are getting some extra help from the company's recent stock split.
Image source: Getty Images.
Palo Alto's stock split positions it for the next wave of growth
A stock split can be a useful tool when a company dramatically increases in value over time. When its share price rises to $500 or more, it can often appear inaccessible to smaller investors, which leaves the stock concentrated in the hands of large funds and institutions.
Palo Alto Networks faced this challenge in late 2022 and opted to conduct a 3-for-1 stock split. The move increased the number of shares in circulation threefold, and, in turn, shrank its share price in proportion. In this case, the split went into effect on Sept. 14 and reduced its price per share from around $550 to $183.75. Palo Alto says the split will be especially helpful for its employees who want to participate in share purchase plans.
Since the cybersecurity industry continues to soar in both value and importance, Palo Alto's timing will help more retail investors capture some of that growth.
For the last 26 years, global consulting firm PwC has surveyed some of the world's top CEOs to get a sense of how they feel about the economy, politics, and their businesses. In the last few surveys in particular, cybersecurity has moved front and center. In the 2023 edition released in January, half of the corporate leaders said they'd increase their investment in cybersecurity when asked how they'd mitigate geopolitical risks -- and it was the top response.
One-quarter of respondents believed their business would be either highly or extremely exposed to cyber risks over the next five years.
Here's why Palo Alto Networks is the solution
The company is recognized as a leader in 13 different segments of the cybersecurity industry across its three core business units: Network security, cloud security, and security operations. Many of those accolades are cloud-centric, which is a core focus area for all organizations as they adapt to an increasingly digital environment.
As large companies in particular shift their operations online, the attack surface is growing rapidly, which makes them more vulnerable than ever to malicious actors. Palo Alto is one of the most experienced providers when it comes to complex security needs given the breadth of its product portfolio, and that's why it has 1,262 customers spending at least $1 million per year. Put simply, some of the largest companies in the world have turned to Palo Alto to protect their digital assets.
There's further evidence in Palo Alto's growth rate. It generated $928.1 million in revenue in fiscal 2015 (ended Jan. 31). Now, eight years later, the company is on track to deliver $6.9 billion during fiscal 2023 -- that's an outright increase of 643%, or a compound annual rate of 28.5%.
Now, after years of investing in growth both organically and through acquisitions, Palo Alto is focusing on profitability. In the recent fiscal 2023 first quarter, it delivered a net income of $20 million, which was a vast improvement on the $103 million loss in the same quarter in the prior year. It bodes well for the rest of fiscal 2023, and the company's timing couldn't be better -- because if the Nasdaq-100 soars this year, Palo Alto stock could attract a larger group of investors from across the risk spectrum.
Wall Street is overwhelmingly bullish on Palo Alto stock
NASDAQ: PANW
Key Data Points
The Wall Street Journal tracks 44 analysts who cover Palo Alto Networks stock, and 35 have given it the highest possible "buy" rating. But that's not the best part. Not a single analyst among the group recommends selling. It's not often that investors are given this clear a consensus from the professionals on Wall Street.
Palo Alto stock currently trades at $157.73, and those analysts have an average target of $205.79, which represents an upside of 30%. But one analyst firm -- Redburn Partners -- is betting the stock could soar to $270, which would be a gain of 71% from here.
The Nasdaq-100 is off to a hot start to 2023 with a gain of 10%, signaling history might be set to repeat after last year's loss. If it does, Palo Alto Networks might be one of the best stocks to own. The company is at the top of an increasingly essential industry, and it's backed by a strong bullish consensus on Wall Street, which is hard to come by in the tech sector right now.
