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Is Palo Alto Networks’ share price set for new highs?

Palo Alto Networks’ [PANW] share price has enjoyed a stellar run since last year’s 18 March low of $125.47, rising a whopping 190.8% to 15 January’s closing price of $364.87. The US cybersecurity stock appears to be back on an upward trail, after it pulled back to $350.50 from its record-high of $375.00 achieved on 23 December. 

Positive Q1 earnings on 16 November – with revenue of $946m surpassing guidance of $915m-$925m – has only aided Palo Alto Networks’ share price, with gains of 31% since that point (as of 15 January’s close). 

Despite the stock’s impressive performance for much of last year, and particularly from November onwards, the firm’s ownership structure, allied to the industry’s vast potential in an age of ongoing security threats, may offer further cause for optimism. 

 

 

 

High institutional ownership offers positive signal 

When trying to analyse a company’s strength, there are lots of possible metrics to consider. Aside from analysts’ ratings, one element to consider when assessing Palo Alto Networks’ share price potential is to assess its ownership structure – and this setup may well boost investors’ confidence. A significant 82.4% of the firm is owned by institutional investors, according to Simply Wall St, which “implies the analysts working for those institutions have looked at the stock and they like it”. 

 

82.4%

Palo Alto owned by institutional investors

 

The Vanguard Group is currently the largest shareholder, with 8.7% of total shares, while the second and third largest shareholders hold 6.2% and 4.1% respectively. 25 shareholders control 50% of total ownership, with no single shareholder having majority ownership. There is a potential risk when multiple institutions own shares, as a scenario may be created where multiple parties are competing to sell quickly. However, Simply Wall St surmise this risk is higher in a company without a history of growth, which does not apply to Palo Alto Networks’ share price.

 

SolarStorm cyberattack worries

Cybersecurity stocks received a boost in December, after Russian hackers reportedly accessed US government computer networks. According to Reinhardt Kraus, writing on investors.com, “government agencies and companies exposed to the cyberattack, including Microsoft, are still assessing the damage”. 

A group known as “SolarStorm” compromised global organisations via a supply chain attack on the SolarWinds [SWI] Orion platform. The repercussions could offer a boost for the cybersecurity industry over the longer term, as firms redouble efforts to repel any unwanted attacks. Palo Alto Networks’ CEO, Nikesh Arora, reckons “we will soon be talking about this as one of the most serious cyberattacks in history”, warning that firms are not prepared "for the next SolarWinds."

 

"we will soon be talking about this as one of the most serious cyberattacks in history” - Nikesh Arora, Palo Alto Networks' CEO

 

KeyBanc analyst Michael Turits, quoted on investors.com, reinforced cyber stocks’ potential gain, saying: "We believe the event stands to boost spending with cybersecurity companies across the board, most notably including incident response and broader security consultants, vulnerability management, endpoint, application security, analytics, and identity vendors."

The ongoing efforts to counter these threats may offer huge potential for growth in the industry as a whole, and Palo Alto Networks’ share price in particular.

 

Where next for Palo Alto Networks’ share price?

Among the analysts tracking the stock with the Wall Street Journal, Palo Alto Networks’ share price has an average target of $355.58, with a high target of $425 and a low target of $270. The average price target would see a slight 2.5% downside on 15 January’s closing price. 

On the positive side however, of the 35 analysts offering recommendations on Palo Alto Networks, a majority of 27 rate the stock a buy, with one outperform, six hold and one sell rating, giving an overwhelming buy consensus. 

With the stock sitting just off its record high following a strong performance over a sustained period, the average price target may not surprise investors. With the latest cyber threat fears and the significant potential this offers, alongside its institutional backing and clear buy consensus, Palo Alto Networks’ share price could be primed to move to fresh highs.

 

Market cap $35.33bn
Operating margin (TTM)
-4.43%
EPS (TTM) -3.10
Quarterly revenue growth (YoY) 22.60%

Palo Alto's share price vitals, Yahoo Finance, 18 January 2021

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