Looking at PANW, a more mature company, growing at a slower but steady pace, and a lower valuation then the hyper growth names, I can’t help but think that a more moderate growth play like this just might continue to outperform the higher growth, higher valuation names.
YTD up about 14%, including today’s gain.
One year up about 60%.
I am getting different numbers, and differing opinion of valuation here.
PANW next FY guides for 113m shares.
It therefore sports a $64.3B market cap at today’s close price.
They reported ARR $1.89B, which grew at 60% (as of quarter end 7/31/22). They expect $2.65B in ARR at 40% growth next FY.
They expect 6.9B total rev at 25% growth next FY.
If we back out the subscription/recurring rev portion, maybe 4.6B of the next FY total rev is coming from their hardware based NON-recurring revenue business?
Now let us check on CRWD to compare.
CRWD guided end of this FY at 241m shares.
It therefore sports a $46.4B market cap at today’s close price.
They last reported ARR $1.92B, which grew at 61% (as of quarter end 4/30/22).
I’d expect maybe (???) $3B ARR at around 50% growth in four quarters.
Note that CRWD is a pure SaaS company, unlike PANW.
So let’s compare valuations.
We see CRWD has perhaps 15.5x forward price to ARR ratio.
Note CRWD has possibly superior gross margins at 77%, and PANW’s ARR is definitely slower growing.
That means PANW’s ARR might have a ~10x forward multiple. This implies PANW ARR could be worth $26.5B alone.
Subtract that from PANW’s current total market cap of 64.3B. That means the hardware based, **NON-**recurring revenue portion of PANW’s business is right now worth 37.8B, against expected rev of 4.6B, which is 8.2x forward price to sales, growing at less than 20-25% YoY. On the surface, that doesn’t seem “cheap” to me for the non-SaaS, hardware based business portion.
Now I am NOT an expert on PANW at all, but I am aware they made some huge acquisitions over the last couple years. How much of the growth is organic currently? Do we expect them to have to acquire more companies to prop up their future growth? And if they need to acquire in the future, do they have enough cash anymore or too much debt and would have to dilute shareholders to do it?
Finally, regarding your statement that PANW stock is up 14% YTD as well as 60% one year, I am calculating it is actually +2.3% YTD and 53% one year return (and it might fall to 29% one year return tomorrow, when it laps one day after the gap up of Aug 23, 2021)
Anyway, again I am not an expert on PANW, hopefully they continue to deliver great business and share price returns in the future for any holders, but want to put my opinion out here that it isn’t as “undervalued” as one might assume.