Sunday, November 30, 2014

Palo Alto Networks, Fortinet, and Check Point Software: Which Stock to Buy?

ector, but the decision over buying or selling the stock isn't as easy as you might think. Investors often buy or sell stocks based on their relative valuation within their peer group, but with the network security sector it isn't quite so easy. Why is this so? Furthermore, is Palo Alto Networks a buy or sell?



You say value, I say growth

It's tricky to compare valuations in the network security sector, because the leading players are at different stages of their development, and this makes them attractive to a different type of investor. For example, a value investor might look at a mature, highly cash generative, stock like Check Point Software (NASDAQ: CHKP  ) at conclude that it's the best in class. Meanwhile, growth at reasonable price,or GARP, investor will like the look of Fortinet's (NASDAQ: FTNT  ) mix of mid-teens revenue growth and solid free-cash flow generation, while a growth investor will favor Palo Alto's 30% plus growth rates, even if its free-cash flow yield is low.



I'm going to graphically introduce some of these ideas for you, and then get into the numbers. First, a quick look at revenue growth for these three companies in the last four years and the analyst forecast for the fifth year, reveals that they really are at different stages of development.


READ THE FULL EQUITY RESEARCH ARTICLE LINKED