Is It Too Late to Buy Palo Alto Networks Stock?

Though the company dered better-than-expected results and guidance, investors were concerned its margins

However, it appears that investors are now looking past that margin miss and have regained confidence in Palo Alto stock

Let's see why that has been the case, and check whether the stock is worth buying ing its recent rally

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Palo Alto Networks' growth is ly to accelerate One of the reasons why investors are bably becoming bullish Palo Alto is because of the company's fast-imving revenue pipeline

RPO is the total value of a company's contracts that are yet to be fulfilled at the end of a quarter

So, the faster increase in this metric is an indication that Palo Alto is winning more contracts than it is fulfilling right now

That should ideally lead to an imvement in the company's growth rate going forward

Importantly, Palo Alto expects to finish the current fiscal year with an increase of 19% to 20% in its RPO to just over $15 billion, which would be almost identical to the RPO growth it reported in the previous fiscal year

A key reason why Palo Alto's revenue pipeline is increasing at a nice clip is because of the fast-imving demand for the company's next-generation security (NGS) offerings

These solutions include the company's Cortex ext security intelligence and automation management (XSIAM) platform, which uses artificial intelligence (AI) and machine learning (ML) to stop cyber threats and respond to security incidents, among other things

That's not surprising

The company claims that this platform allows customers to reduce the median time to resolve security incidents to as low as one minute, compared to the earlier response time of two to three days before using XSIAM

Another factor that's helping Palo Alto build up a robust revenue pipeline is its platformization strategy, through which it is bundling its various ducts and services with the aim of simplifying the apach to cybersecurity

Palo Alto believes that platformization will enable customers to make cyber defenses more efficient by integrating different solutions into a single platform while reducing costs related to the training and management of security analysts

The good part is that this strategy is gaining traction among customers

Importantly, platformization is helping Palo Alto score bigger deals, which should eventually aid its margins and drive stronger bottom-line growth

This is precisely what analysts are expecting, as we can see in the ing chart

PANW EPS Estimates for Current Fiscal Year data by YCharts

A potential red flag for investors However, investors looking to buy the stock right now need to be aware of one blem

While Palo Alto has been recording healthy double-digit growth and its earnings growth is set to accelerate, the stock's valuation suggests that it may have run ahead of itself

Even if we look beyond the cybersecurity industry, there are other stocks that have been consistently dering stronger growth and are trading at significantly cheaper valuations

As such, there are better bets for investors looking to add a stock to their portfolios right now

Of course, keeping Palo Alto on your and accumulating it on the dips would be a good idea for the long run

This cybersecurity stock has the potential to justify its valuation by clocking stronger earnings growth rates

But buying it right now may not be the smartest thing to do thanks to its expensive valuation

Harsh Chauhan has no position in any of the stocks mentioned

The Motley Fool recommends Palo Alto Networks

The Motley Fool has a disclosure policy.