Golden Lake Partners
Company Research, Infrastructure Technology, Cybersecurity, Vertical & Design Software
Palo Alto Networks is the most overvalued cybersecurity stock by a mile, at about 25x forward revenue while growing only 15% organically. Anything above 10x revenue is hard to justify, let alone 20x. Worse, the "Mythos moment" that sent cyber valuations vertical has not yet shown up in its results. x.com x.comÂ
Palo Alto Networks is priced for far more than it delivers at 21 times revenue, its highest ever by a mile. More than half of its 31% revenue growth is inorganic, and organic growth is 14%. Pitching it to retail as the next place for money, as @BrettKessler__ does, is deceitful and leads average investors to ruin. x.comÂ
Palo Alto Networks at 21x forward sales is too expensive for 17% pro-forma growth, despite BTIG's view that it is worth more than the current price. x.comÂ
CrowdStrike and Palo Alto Networks need 50%-plus growth to deliver even a 10% IRR over a realistic horizon, but almost no conceivable case gets them there. They feel as dumb as Zoom and Peloton in 2021. Even if revenue doubles over four to five years, Palo Alto would still trade at 10x revenue and CrowdStrike at 20x, leaving little prospect of a real IRR; Palo Alto is growing in the teens today. x.com x.com x.comÂ
Palo Alto Networks stands to gain because Mythos has changed how companies budget for security, from a nice-to-have to a probable buy-it-now rush to sign with category leaders. The CEO has been pitching its Next Gen Security product hard, with margin expansion hoped for. That demand may show up in its guidance at today's earnings. The market is rewarding category leaders doing even better, such as ServiceNow and Cloudflare. Options imply a 10.5% move, about 21% for the 2x PALU fund. x.comÂ
Palo Alto Networks looks stretched, with valuation ratios and growth rates resembling its 2021 levels, and the forward multiple is still 22x. @investing_bear makes the same case for CrowdStrike, whose trailing price-to-sales is 43.5 on 26% revenue growth, versus 38.4 at end-2021 on 63% growth. x.comÂ
Palo Alto Networks looks overextended at 100x EPS for a company growing at most 20%, after running from 308 to 389. x.comÂ
Cybersecurity is a clear secondary beneficiary of AI that has been lumped into the software selloff, and Palo Alto Networks is one of the safe bets. It trades at 9x NTM sales for about 23% growth, with a Rule of 40 score above 60 and its CEO buying shares, which is hard to ignore. CrowdStrike and Zscaler are the other safe bets. x.comÂ
Combining estimated NTM revenue growth with trailing GAAP EBITDA margin makes Palo Alto Networks, Datadog, JFrog, Rubrik and Snowflake look overvalued against forward EV/sales. Zoom, Alphabet, Oracle, AppLovin, Microsoft, Fair Isaac, Adobe, Amazon and Teradata remain undervalued on this Rule of 40 comparison; Palantir, Cloudflare and CrowdStrike remain overvalued. x.comÂ
Palo Alto Networks is too expensive at 21x sales and 79x forward earnings for a company expected to grow only about 20% over the next few years. Cybersecurity matters more as AI advances, but even a good company has to be bought at the right price, which is why the stock fell even after a big earnings beat. x.comÂ
Palo Alto Networks looks set for a near-term move to $400-$410 after its CEO bought $10M of shares. The setup resembles Dell's, and cybersecurity looks attractive here. x.comÂ
Palo Alto Networks is an expensive stock for the profit growth it will deliver over the next couple of years, despite another strong quarter and a promising annual guide. x.com x.comÂ
