Palo Alto Networks stock continues its strong uptrend this week and is now hovering at its all-time high. PANW jumped by 156% from its lowest point this year, with analysts expecting more gains.
BNP Paribas predicts that PANW will jump from the current $357 to $380, while Wells Fargo sees it soaring to $420. Other analysts who are bullish on the company are from BTIG and Arete Research.
Palo Alto Networks stock faces technical stocks
The general view among analysts is that Palo Alto Networks will continue doing well in the coming years because of the AI boom. The theory is that, as AI agents become more common, companies will need defensive measures.
All these points are valid. However, technicals suggest that the stock may experience a brief retreat in the coming weeks or months. For one, the stock has become extremely overbought, with the Relative Strength Index (RSI) soaring to 80. Baring a minor retreat in June, it has remained in the overbought zone since May.
Notably, the RSI indicator has formed a double-top pattern with a neckline at 57. This pattern suggests that it will reverse in the near term.
At the same time, the current PANW stock has deviated substantially from its historical moving averages. The 50-day moving average is at $265, much lower than the stock’s price of $357.
As such, there is a risk that the stock will go through a situation known as mean reversion. This is a situation where an asset drops back to its historical moving averages as investors book profits.
Therefore, these technicals point to a short-term reversal, potentially to the psychological level of $300. Such a pullback will not be new for the stock. For example, after rising to $222.85 in October 25, the stock retreated by 37% to $139.1 in February and then bounced back.
Palo Alto Network’s business is doing fairly well
Palo Alto Network’s business is expected to keep doing well in the coming years, especially now that it has acquired CyberArk. CyberArk gave it CORA AI, the central hub for identity security-focused AI capabilities.
Yahoo Finance data shows that the average view is that its revenue will jump by 24% this year to $11.4 billion. It is expected to rise by 20% in the next financial year to nearly $14 billion. Similarly, its earnings per share are expected to hit $3.77.
Based on Palo Alto’s history, chances are that it will do better than what analysts expect. It has beaten forecasts in the past 7 consecutive quarters.
Still, in addition to its risky technicals, PANW stock’s other risk is its valuation. SeekingAlpha data shows that it has a forward price-to-earnings ratio of 92.25, higher than the sector median of 24. Its PE multiple is much higher than the five-year average of 57.
This valuation multiple suggests that the company is priced for perfection and that its next earnings report will be crucial. If the earnings and guidance are not all that strong, there is a risk that it may retreat as it did after the last earnings report when it fell to $250 from $305.