Palo Alto Networks (PANW) is trading strongly today after beating earnings estimates, announcing a $1 billion buyback program, and receiving a number of target increases from analysts.
Unlike other recent Stocks of the Day, such as Home Depot (HD) and General Electric (GE) , Palo Alto Networks is a classic momentum stock. It trades much differently than other big cap names that are generally perceived as 'value' plays rather than 'growth' or 'momentum' names.
What is most impressive about PANW is the revenue growth. The company had 30% revenue in each of the last four quarters. The stock sells with a trailing PE of 48 and is anticipated to grow EPS 27% in the FYE July 2019 and 20% in FYE July 2020. That isn't a bargain basement valuation but with momentum stocks that is overcome with the strong revenue growth.
The key for a stock like PANW going forward is that it continues to beat earnings estimates. Management is very aware of this and they work hard to keep expectations low. They have consistently low-balled guidance so they can keep on beating.
Palo Alto Networks has the momentum and there will be plenty of momentum players ready to buy it here near all-time highs. Just keep in mind that the key here is that growth continues at a very high levels. Such stocks always look expensive.
The indices are battling back form early weakness as Chairman Powell continues to deftly deal with Congressional questioning and Michael Cohen produces a slew of sensationalistic quotes about President Trump. Neither event is likely to have any immediate impact but they did provide some justifications for whatever the market does next.
Technically, as long as the intraday lows now hold, the bulls won't be too worried but if they are tested it will create some anxiety.