Palo Alto Networks Inc.: Investors’ Confidence Command a 50% Upside Potential in This Stock

We are still on the revision of the series titled “Cybersecurity Stocks on the Move” and we will start our options trading activities this week with Palo Alto Networks Inc. (NYSE:PANW). Palo Alto Networks with its market capitalization of $12.73B offers a network security platform that allows enterprises, service providers, and government entities to secure their networks. The core of its platform is the Company’s firewall that delivers natively integrated application, user, and content visibility and control through its operating system, hardware, and software architecture.

Previous Coverage on PANW Options

A little over three months ago on February 12, I wrote about trading the options of Palo Alto Networks. In that piece, I talked about the impressive share price gains that saw Palo Alto gaining more that 130% in the previous year. I talked about the company’s optimistic financial outlook and I recommended bullish PANW option trades. I specifically recommended that you buy the PANW Jun 2015 110.000 call (PANW150619C00110000at an asking price of $28.50.

Performance in 3 Months

When I wrote the aforementioned February piece, the shares of Palo Alto were trading around $132.64 per share and the options contract that I recommended had an asking price of $28.50. Interestingly, the shares of Palo Alto have soared to record a new 52-week high of $158.24, ten weeks after the initial coverage. As at market close last Friday, the shares of Palo Alto Networks have gained 16.64% to close at $154.72.

The options contract that I recommended at an asking price of $28.50 had gained an incredible 50.5% to command an asking price of $42.89 as at market close last Friday.

Why Are We Looking at Palo Alto Networks Today?

Palo Alto Networks is set to release its fiscal third quarter (Q3 2015) results on May 27, and I believe that options traders can take strategic positions in order to profit when earnings are released next week on Wednesday.

Some people might find it somewhat hard to understand why I am bullish on Palo Alto Networks given the fact that the company has consistently missed estimates in the last 8 quarters since it became publicly traded. However, the fact remains that Palo Alto has been delivering impressive revenues even though its earnings has not met expectations.

For instance, in the fiscal first quarter (Q1 2015) Palo Alto reported loss per share of $0.27, which was wider than the consensus estimate of $0.11 loss per share. However, the company’s revenue in the first quarter climbed 50.1% year-over-year to $192.3M and it beats the consensus estimate of $181M.

In the second quarter (Q2 2015), Palo Alto reported loss per share of $0.42, which was wider than the consensus estimate of $0.13 loss per share. However, the company’s revenue in the second quarter climbed 54.3% year-over-year to $217.7M and it beats the consensus estimate of $202M.

Hence, investors are confident that the company will eventually break even inasmuch as it continues to deliver innovative products for garnering more market share. Therefore, the bullish side will continue to win on PANW option trades inasmuch as investors’ confidence and optimism on the company remains high.

How to Trade PANW Options

PANW Chart

The chart above shows how the shares of Palo Alto Networks have gained 169.85% from a 52-week low of $58.64 to a 52-Week high of $158.24 within the last one year. The stock’s 50-day moving day average of $146.68 is higher than its 100-day MA of $138.3, which is in turn higher than its 200-day MA of $119.36; hence, the stock is clearly in an uptrend.

I recommend buying PANW call options. You should consider buying the PANW Dec 2015 155.000 call (PANW151218C00155000) at an asking price of $15.50.

— Daily Option Alerts

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