Cybersecurity is becoming increasingly important. As businesses go online, companies' data have become huge targets for hackers and other malicious actors. Palo Alto Networks (PANW 1.47%) is essential in keeping over 80,000 enterprises safe.
The company was founded in 2005. Despite its older age in an industry that demands cutting-edge innovation, Palo Alto has evolved and positioned itself to continue growing as an industry leader.
Investors face an exciting investment opportunity in a company that's profitably growing, with years of runway ahead. Consider sticking the stock in a diversified portfolio, which might help you retire a millionaire.
Building on a successful core product
Palo Alto Networks' roots are in network security. Its firewall technology is the foundation on which it built its business. A firewall is a layer of security that protects networks by filtering what leaves and what comes in from outside networks. Imagine you're at a cool club, wanting to get inside. The security guard who checks IDs and determines who enters is doing precisely what a firewall does for a network.
Firewall security is Palo Alto Networks' specialty. Third-party technology consulting firm Gartner's Magic Quadrant rankings have recognized the company as a network firewall leader for 11 consecutive years. Understandably, cyber threats have evolved over the years, and rather than stand still, Palo Alto Networks has acted to remain competitive in security.
The company strategically acquired smaller, innovative security companies and integrated them into its firewall offerings.
Palo Alto Networks now sells next-generation products, including Strata, Prisma, and Cortex, to expand into new areas, like cloud management, cloud security, and endpoint security. In other words, it's leveraging its existing customer base in firewall security to cross-sell new products.
Over half of Palo Alto's customers in the Global 2,000 have signed on to use these next-generation products.
Growth potential illustrated in numbers
Over time, Palo Alto Networks has become a leading software company worth over $100 billion and doing over $7 billion in profitable revenue. Additionally, the company's top line is still growing at a 20% rate, so there's still lots of juice left.
PANW Revenue (TTM) data by YCharts
In recent quarters, Palo Alto Networks' remaining performance obligations have increased faster than billings, signaling revenue growth could accelerate. That's great news, but look further out, and there are industrywide trends that could put wind in the company's sails for years.
According to a report by one research firm, Market Research Future, cybersecurity is poised to grow by 13% annually for the next decade, becoming a $358 billion industry by 2032. Endpoint security was cited as a factor driving industry growth, which Palo Alto Networks covers with Cortex. Adding products in these emerging niches sets Palo Alto Networks up to capture a larger piece of an already growing pie.
Is Palo Alto Networks a millionaire maker?
Investors have enjoyed scorching investment returns over the past decade. Up over 1,500%, Palo Alto Networks has easily outrun the S&P 500. It makes sense when you consider how much more online the world is now, and all the additional networks that need security.
PANW Total Return Price data by YCharts
What matters is what's to come from here. Future returns depend heavily on how successful Palo Alto Networks is at cross-selling next-generation products in a highly competitive cybersecurity field. So far, it looks promising since its backlog of business is growing, and Palo Alto's technology scores well in these third-party competitions.
Additionally, the company has grown large enough to generate lots of free cash flow -- $2.9 billion over the past year. Investors shouldn't be surprised if management starts repurchasing more stock to help keep earnings growth strong.
Investors will probably never be able to simply buy and forget about any cybersecurity stock because of how quickly competitive advantages can change in this space. However, Palo Alto Networks has proven it has staying power and the size to be reckoned with. So far, it's good news for investors wanting a stock that can help lift a portfolio to strong investment returns over the long term.
