Even with Palo Alto Networks Inc (NYSE:PANW) trading down substantially after reporting weak earnings the stock is still overvalued. The stock was one of the hottest IPOs in 2012 and has always traded at lofty market multiples.
Palo Alto Networks Inc (NYSE:PANW) is a leading supplier of next generation network security for enterprises, service providers, and government entities to secure their networks. The company forecast up to 45% revenue growth in the next quarter, but is that growth enough to justify outlandish multiples?
Impressive list of deals
Palo Alto Networks Inc (NYSE:PANW) fired off numerous impressive wins during the quarter ended in April. Several deals beat out much larger competitors in Juniper Networks, Inc. (NYSE:JNPR) and Check Point Software Technologies Ltd. (NASDAQ:CHKP) that Palo Alto continues to capture market share on a daily basis.
During the quarter a top 25 customer had to spend $3.2 million with Palo Alto Networks Inc (NYSE:PANW) up from $2.8 million in the previous quarter. The company won deals for a very large industrial manufacturer in the U.S. that beat out Check Point and replaced Juniper Networks, Inc. (NYSE:JNPR) as the new firewall. The company replaced Cisco Systems, Inc. (NASDAQ:CSCO) at one of the largest banks in Japan. In Germany, it beat Check Point for a larger perimeter firewall deal at a leading cable company.
Weak results and guidance
With a stock trading for 10 times revenue expectations in 2013, Palo Alto needs to hit every quarter out of the park in order to grow the stock. Instead, the company reported revenue of $101 million and earnings of $0.06. The revenue number missed analyst estimates and the earnings were basically inline with analyst expectations. These numbers were not exactly good enough to impress the market causing the stock to collapse nearly 11% the next day.
Another concerning point is that guidance was much weaker than expected. The company only expects revenue in the range of $108 million and earnings of $0.06. Both numbers are lower than expectations.
The biggest concern has to be that diluted shares outstanding will jump to potentially 80 million shares as the company reports non-GAAP profits. At the price of $54 prior to earnings, the company had a value of $4.3 billion. This number is significantly higher than those listed at popular financial websites due to the significant amount of stock options included in diluted shares.