Here's why this cyber leader still has more room to run, despite recent share-price volatility

Published Fri, Aug 25 20233:31 PM EDT

Cybersecurity leader Palo Alto Networks (PANW) has endured a slew of volatile trading sessions over the past month, plunging on the back of a peer's weak forward guidance before skyrocketing early this week after reporting blockbuster quarterly results. But while Palo Alto's share price may be seesawing, the company's underlying business fundamentals and its future growth prospects remain intact. So, we encourage long-term investors to block out any short-term noise. We're optimistic shares will continue to move higher over the next six-to-nine months, which is why we raised our price target on Palo Alto stock on Monday to $280 a share, up from $245. Shares of Palo Alto were up more than 1.4% in afternoon trading Friday, at roughly $230.70 apiece. "Cybersecurity is still number one on the agenda in all boardrooms," CNBC Jim Cramer said during the Club's August Monthly Meeting . Still, Palo Alto stock had slumped 10% after cybersecurity rival Fortinet (FTNT) reported weak forward guidance on Aug. 3, while warning that customer deals were being delayed. Following the sell-off, we increased Palo Alto's rating to a 1, from a 2, meaning we would've been buyers at those levels. Palo Alto's unusual decision to release its results — and hold its post-earnings conference call — after the closing bell last Friday had some on Wall Street nervous, to say the least. The stock was down a total of 18% from the start of the month going into the print. But the market angst proved to be largely unwarranted, with Palo Alto delivering solid fiscal 2023 fourth-quarter results and sending shares soaring by more than 15% on Monday. The stock has since retreated around 5.5% throughout this past week. To be sure, there were some weak spots in the results. Sales missed marginally and subscription-and-support numbers came in slightly below estimates. But the company's strong profit margins, better-than-expected free cash flow and favorable forward guidance offset those negatives. "It was fantastic," Jim said of the results on Monday. Palo Alto "is winning business from everybody, and it was one of the most impressive, albeit long, conference calls that I've ever been on." Wall Street reacted favorably, with a slate of big banks like Evercore ISI, Bank of America, Deutsche Bank, RBC Capital Markets and UBS all raising their price targets on Palo Alto stock this week. "The main reasons for the price target increase not only with us, but I think just across the sell side [is that] there's just more conviction in the numbers," UBS analyst Roger Boyd told CNBC Friday. "I think, broadly, the next year's guide [and] the medium-term outlook were just a lot better than what some investors were fearing," he added. UBS lifted its price target on Palo Alto stock to $260 a share, from $220, while maintaining a neutral rating. Similarly, in a research note this week, analysts at RBC said, "overall, the [earnings] call reinforced our view that Palo Alto remains in a great position to consolidate enterprise security spend and, in turn, remains a great way to invest in security at the platform level with expanding margins." Bottom line Palo Alto Networks is an increasingly key player in the cybersecurity space, as it continues to grab market share. The company has a less-cyclical and more-diversified revenue stream than peers. Palo Alto's client base also consists of larger players with more scale, meaning those enterprise customers should be better positioned to continue spending on cybersecurity infrastructure amid economic uncertainty. (Jim Cramer's Charitable Trust is long PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Signage outside Palo Alto Networks headquarters in Santa Clara, California, U.S., on Thursday, May 13, 2021.

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