Making a New Niche in Security


Rob DeFrancesco Image Rob DeFrancesco Founder, Tech-Stock Prospector

Everyone loves an underdog, especially when the underdog is punching above its weight and this security upstart is taking the fight to old guard, observes Rob DeFrancesco of Tech Stock Prospector.

It is interesting to see the performance disparity between shares of networking security veteran Check Point Software (CHKP) and the new kid on the block, Palo Alto Networks (PANW), since the latter’s IPO in the middle of July.

Check Point shares during this period are off 6%, while Palo Alto shares have advanced 47% from the IPO price of $42 and 12% from the opening price of $55.20. And that’s even with Palo Alto shares off 14% from the post-IPO high of $72.61 reached on September 5.

Palo Alto’s recent market cap of $4.2 billion is 44% of Check Point’s market cap, even though Palo Alto at this point is doing about 25% of Check Point’s revenue on a quarterly basis. The difference in valuation can be attributed to the top-line growth rates, with Check Point growing about 9% annually and Palo Alto’s fiscal 2013 (July) consensus revenue estimate indicating growth of at least 50%.

For the fiscal fourth quarter (ended July), Palo Alto’s revenue surged 88.1% to $75.6 million, beating the consensus estimate of $71.2 million, and per-share earnings of 3 cents topped the consensus by, well, 3 cents. Product revenue rose 70% to $49.4 million and support revenue jumped 135% to $26.2 million.