Analysts Predict New Highs for Cybersecurity Stock by Christmas

Key Points

• Palo Alto Network shares have rallied 180% since January 2023.
• Analysts are calling for even further upside heading into the holidays.
• The company's fundamental performance has been and will continue to be, key to this outlook.

Shares of Palo Alto Networks NASDAQ: PANW have had a stellar year, with shares continuing to build on a 180% rally that started in early 2023. Now just $5 shy of its all-time high from February, excitement is growing for what's next. 

With a market cap of $122 billion, the outlook for this California-based cybersecurity leader continues to improve, driven by strong demand for its product offering and its competitive positioning.

As we head into the final few weeks of the year, there are several reasons for investors to be excited about Palo Alto Networks' stock. Let's jump in and take a look.

Palo Alto's Consistent Performance

To start with, there's the company's fundamental performance. Palo Alto Networks has been consistently crushing analyst expectations, and last August's report was no different. As CFO Dipak Golechha summed up at the time, "We successfully balanced profitable growth, as our non-GAAP operating margins increased by more than 300 basis points for the year with strong cash generation, marking one of the best years for Palo Alto Networks."

This kind of optimism and momentum puts pressure, in a good way, on Palo Alto Networks to deliver again in next month's earnings report. Needless to say, the fact that its shares look set to continue rallying into the release bodes well for it. 

There's also the broader market backdrop to consider, and it's safe to say it's very much working in Palo Alto Network's favor. The benchmark S&P 500 index is hitting fresh all-time highs, which, in tandem with a dovish-leaning Fed, is helping to fuel a risk-on sentiment across stocks in general. 

Bullish Updates for PANW Stock

Beyond the strong fundamental performance, it's worth noting that several analysts are bullish on Palo Alto Network's outlook. This month alone, the teams at KeyCorp, Barclays, Morgan Stanley, and BNP Paribas have all rated the stock a Buy. This builds on a similar stance from Susquehanna in late September. 

Much of the optimism centers on Palo Alto's platformization strategy and its strong positioning in the ever-growing demand for cybersecurity solutions. Each update has suggested the stock has more room to run, with KeyCorp's price target aiming particularly high. Considering Palo Alto Network shares closed out last week just under $375, KeyCorp's price target of $435 is pointing to an additional upside of around 16%. Needless to say, were Palo Alto Networks' shares to trend up towards that level in the coming weeks, they'd be at fresh all-time highs. 

Potential Concerns: Palo Alto Networks' High P/E Ratio of 52

For those of us considering getting involved, there are a few concerns worth noting. First, Palo Alto Network's price-to-earnings (P/E) ratio stands at 52, which is relatively high compared to broader market averages. A stock's P/E ratio is a popular method of quickly ascertaining how expensive or cheap a stock is to its peers and the wider market. 

However, while Palo Alto Network's ratio could be called a little high, it's still much lower than their competitor CrowdStrike Holdings Inc's NASDAQ: CRWD P/E ratio of 453.

Getting Involved: Palo Alto Networks' RSI Signals Strong Demand

The stock's Relative Strength Index (RSI) reading of 66 is also worth noting. While a little warm, it signals strong underlying demand while falling short of the overbought level of 70. In fact, it has a long history of being around this level, if not a bit higher, while the stock is still logging consistent gains.

There's just under a month to go until Palo Alto Networks' next earnings report, and all signs point to the rally continuing to gather pace in the meantime. The company has shown it can consistently beat analyst expectations, it has received some lofty price targets in recent weeks, and the technical indicators are, for now at least, also supporting the bull's case. 

Investors should look for the stock to hit a new all-time high in the coming weeks, with little resistance ahead of it until it's well above $400.