The constant threat of cyber attacks is undeniable. The global average cost of a data breach in 2024 is $4.88 million so far, according to a report by IBMand that amount grows every year. The stakes have never been higher and with the significant potential for business disruption, cybersecurity has become a crucial consideration for every business – and Palo Alto Networks (NASDAQ: PANW) is an undisputed leader in this field.
The company’s consistent execution and business performance have fueled its impressive rise. Palo Alto shares have risen 111% over the past three years, driven by strong revenue and profit growth driven by rising demand for cybersecurity solutions. But there is more. Since Palo Alto’s initial public offering (IPO) in mid-2012, the stock has risen from a split-adjusted price of $14 to over $383, marking an impressive gain of 2,638%.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
On Thursday, in conjunction with the release of the company’s quarterly results, Palo Alto announced plans to split its shares for the first time since September 2022. Shares have more than doubled in the meantime, which is likely the catalyst for this corporate action. This revelation ensures that investors are looking at the stock with fresh eyes. Let’s look at the specifics of a stock split and what it means for investors.
Palo Alto announced that its board of directors had approved a 2-for-1 stock split. This will be the result of an amendment to the company’s revised certificate of incorporation, which management says will result in “a proportionate increase in the number of authorized common shares.”
As a result of this split, shareholders of record will receive one additional share of stock for each share they own after market close on Friday, December 13, beginning December 12, 2024. Trading is expected to occur on a split-adjusted basis on December 16.
Palo Alto Networks shareholders do not need to take any other action to receive the additional shares. Investment banks and brokerage firms handle all the details behind the scenes. The newly minted shares will simply appear in investment accounts with no further action required. The specific timing can vary from broker to broker, so investors don’t have to worry if the newly issued shares don’t arrive immediately on December 16. It may take hours or even days for the additional shares to appear.
For every share of Palo Alto a shareholder owns – currently trading for about $386 per share (at the time of writing) – investors will hold two shares worth $193 each after the split.
As the example above clearly shows, the total value of ownership does not change based on the stock split alone; it’s just another way of looking at the whole thing. In other words, if you have $1, it doesn’t matter if you have a dollar bill or four quarters, you still have the same amount. Likewise, Palo Alto shareholders will simply have a greater number of cheaper shares.
However, in recent years, investor psychology has become increasingly important, and the excitement over the stock split itself has generated greater interest. Companies also believe that a lower share price can stimulate demand for cheaper shares. While that is often the case – at least in the short term – the euphoria historically wanes and investors begin to focus on what matters most: the company’s operating and financial performance, which ultimately drives the share price up or float down. in the longer term.
Although the stock split alone is not enough reason to buy Palo Alto, there are other reasons why the cybersecurity specialist is purchasing. The company’s financial report provides ample evidence to support this argument.
In the first quarter of 2025 (ended October 31), Palo Alto reported revenue that rose 14% year over year to $2.14 billion. This caused earnings per share (EPS) to rise 77% to $0.99. Both figures were enough to exceed Wall Street expectations.
Perhaps most importantly, the results drove a 40% increase in next-generation security annual recurring revenue (ARR), which rose to $4.5 billion. It’s almost always a good sign when ARR grows faster than revenue, as it suggests the robust growth will continue into the future.
The need for cybersecurity solutions shows no signs of slowing down. The global cybersecurity market was valued at $238 billion in 2023 and is expected to rise to $878 billion by 2034, a compound annual growth rate of nearly 13%, according to Precedence Research.
If you have doubts about Palo Alto’s family tree, consider this. The company was rated as a leader in Gartner‘s 2024 Magic Quadrant for its software-defined networking solutions. Palo Alto was also recognized as a leader in the fourth quarter of 2024 Forrester Wave Report for its enterprise firewall solutions.
Investors should not buy shares of Palo Alto Networks based solely on the upcoming stock split. On the contrary, the company’s long track record of consistent execution, impressive price gains, and robust performance make Palo Alto stock a winning investment.
There’s the matter of Palo Alto’s valuation, which could deter some investors. The recent price increase has led to a commensurate increase in its valuation. Palo Alto is currently selling for 60 times forward earnings and 12 times expected revenue – which certainly isn’t cheap. However, Palo Alto shares are up 368% over the past five years, four times the stock’s return. S&P500so you get what you pay for.
The company’s robust business and financial growth make it a great candidate for dollar-cost averaging, which allows you to buy fewer shares when costs are higher while picking up more shares when the stock price falls.
If you think Palo Alto is too expensive right now, it definitely deserves a place on your watch list.
Before you buy shares in Palo Alto Networks, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Palo Alto Networks wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $869,885!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 25, 2024
Danny Vena has no positions in any of the stocks mentioned. The Motley Fool recommends Gartner, International Business Machines and Palo Alto Networks. The Motley Fool has a disclosure policy.
Palo Alto Networks announces 2-for-1 stock split. Here’s what investors need to know. was originally published by The Motley Fool
