Why did Palo Alto Networks stock rise 15% last month?

Shares Palo Alto Networks(NASDAQ: PANW) rose 15% in June, according to data provided by S&P Global Market Intelligence. After a poorly received earnings report in May, investors were excited by bullish demand indicators from other cybersecurity stocks.

Good news from cybersecurity experts

Palo Alto reported quarterly results in May. Revenue growth of 15% was in line with analyst forecasts and beat expectations, with earnings per share of $1.32. However, shares fell after the report. The company is dealing with slowing growth in its core firewall products, and bookings were a bit weaker than analysts had expected. Palo Alto’s revenue forecasts were roughly in line with consensus forecasts, but investors remained concerned about the overall outlook.

Photo source: Getty Images.

That news had been fully digested by the market by June, so the stock’s performance last month was driven by demand indicators from some of its cybersecurity peers. Those data points were mostly bullish. Scaler(NASDAQ: ZS) beat analyst estimates with a 32% revenue increase, and its quarterly earnings per share (EPS) of $0.88 crushed consensus expectations. Investors were pleased with the company’s optimistic outlook. CrowdStrike(NASDAQ: CRWD) The news was followed by impressive results. CrowdStrike sales jumped 33%, driving better-than-expected revenue and profit. That momentum prompted the company to raise its full-year guidance.

In June, the rise in water levels reported in some quarterly reports seemed to float all boats. Cloud(NYSE:NET) AND SentinelOne(NYSE:S) also rose despite reporting quarterly results in May. Price charts point to a common driving factor.

PANW Total Return Data by YCharts

There have been concerns that high interest rates around the world are hampering corporate spending, which is lengthening sales cycles and slowing growth for cybersecurity companies. However, recent results from key industry players suggest that demand remains strong. If the industry can survive the challenging short-term environment, the long-term outlook is exciting. Sensitive data is part of nearly every company’s operations, and protecting that data is essential. As cybercriminals have more and more entry points to exploit network vulnerabilities, leading cybersecurity vendors should see solid growth in demand.

Palo Alto has great long-term prospects

Palo Alto Networks is arguably one of the leaders in the cybersecurity industry. The company consistently receives high marks from industry analysts. Forrester published a glowing review of Palo Alto’s product suite in June. The company is expanding beyond its traditional, core firewall business and has promising opportunities to gain market share in related areas, such as Secure Access Service Edge (SASE). These newer product categories are generating a growing share of Palo Alto’s top line, which should help accelerate growth—or at least mitigate the slowdown in its firewall business.

Cybersecurity is a competitive industry, but growing demand for a range of products is supporting impressive growth rates for many companies in the sector. Most leading cybersecurity stocks are delivering impressive growth while generating significant cash flow. Despite lagging competitors, Palo Alto still grew 15% last quarter while expanding margins to generate nearly $500 million in free cash flow. The stock’s P/E ratio is over 50. The June earnings momentum across the industry after the summer quarter illustrate investor optimism about cybersecurity’s long-term prospects and Palo Alto’s ability to execute.

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