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Palo Alto Networks' (NASDAQ: PANW) stock price may look a bit cheaper than it used to. That's because it recently underwent a 2-for-1 stock split that dropped the stock from around $400 per share to $200 per share as of Dec. 16.
In the past, stock splits have been a kick-start for some stocks to go on monster runs. It's just business for others, as the split only has cosmetic effects. For Palo Alto, the stock split hasn't done much so far.
However, there's a solid business associated with this stock, which is a far better reason to buy than a stock split.
Palo Alto has a broad range of cybersecurity offerings
Although it has a broad product range, Palo Alto Networks is focused on cybersecurity products. Historically, the company has been a leader in the firewall space, protecting its customers from external threats. While Palo Alto still has its firewall business, it's most excited about its next-gen security (NGS) products.
Part of the company's NGS product suite is its endpoint protection software, called Cortex, which protects network access points like laptops by using artificial intelligence (AI) to detect threats. If this sounds familiar, that's because Palo Alto is competing against another popular cybersecurity investment in this space: CrowdStrike (NASDAQ: CRWD). While Gartner named Palo Alto a leader in this arena, it is still behind CrowdStrike in its ability to execute and completeness of vision.
Palo Alto's management calls out a huge tailwind in the cybersecurity industry called "platformization." This is when a company uses a single provider for most of its cybersecurity needs, rather than piecing together parts from various vendors. This is CrowdStrike's strategy as well, and it makes these two formidable foes.
Palo Alto also offers a cloud security offering known as Prisma. The major cloud computing companies, as well as CrowdStrike, have their own cybersecurity products competing in this space.
The cybersecurity market is ultra-competitive, and Palo Alto has quality products. But does that translate into a strong business?
Palo Alto's financials are a two-sided story
If it were up to Palo Alto's management, they would point you to NGS's annual recurring revenue (ARR) growth as a sign of success (which includes Cortex and Prisma), as it was up 40% year over year to $4.5 billion. For reference, CrowdStrike's last ARR figure was $4.02 billion, growing at a 27% pace.
However, Palo Alto also has its legacy business that dampens overall growth, as total revenue rose 14% year over year to $2.1 billion. Still, Palo Alto produced a strong profit margin, converting 16% of revenue into profits.