It Is Too Late To Buy This Pelosi Stock?

What started out as a fun joke tracking Nancy Pelosi’s trades has turned into somewhat of a cult following. That’s because Pelosi’s portfolio was up as high as 71% this year alone but her short-term market outperformance is mirrored over the long-term with returns that rival those of Buffett.

That led many to speculate whether it was time to go all-in when she bought Palo Alto Networks earlier this year. Sadly for those who jumped on board early, the stock fell sharply initially. But whoever runs Pelosi’s portfolio doubled down, and since then the share price has soared, so is it too late to get in or just the start of a big bull run?

Key Points

• Nancy Pelosi’s stock picks, including Palo Alto Networks, have gained attention due to their exceptional returns.
• Palo Alto Networks is poised for strong growth, driven by its next-gen security platforms, with recurring revenue expected to dominate by 2030.
• Despite solid fundamentals, Palo Alto Networks trades at a premium, suggesting it’s a buy on market dips.

Why Is Palo Alto Bouncing Back?

After the sharp correction earlier in the year, Palo Alto Networks reported quarterly results recently that impressed investors. Revenues climbed by 12.1% to a new quarterly high of $2.1 billion while earnings before interest and taxes were reported at $238 million, near all-time highs.

But what has investors is excited is the future more so than the past. Over the next 5 years, growth rates are expected to come in at 17.5% annually on the top line and just 0.1% lower on the bottom line.

Now when you turn your attention to valuation, the stock may appear to be trading at a premium. The P/E ratio is sitting at 44x while P/S is at a massive 12x. So, what is it that Pelosi and other buyers are seeing now to justify holding PANW shares?

What Palo Alto Has In the Pipeline?

Palo Alto’s next gen products are key to its future and they encompass fast-growing areas like artificial intelligence, secure access service edge and cloud security.

Beneath the surface of the top line growth figures is a key metric, the recurring revenue from next-gen security platforms, which are up 43% annually.

Better still, that number is forecast to outpace top line growth by almost 2x next year, and come in at 30% to $5.45 billion.

And here’s the kicker, the part of the company that is growing the fastest is also the part of the company that is expected to comprise the largest part of revenues by the turn of the decade. By 2030, a full 90% of Palo Alto Networks revenue is forecast to be recurring revenues, which commands a hefty premium on Wall Street.

Is It Too Late To This Pelosi Favorite?

At first glance, it’s easy to get swept up in the Palo Alto Networks excitement. Nancy is in. 31 analysts have revised their expectations higher for the upcoming quarter. And the fundamentals appear to justify the excitement.

But, the valuation is at a premium right now and the consensus fair value among analysts is $378 per share right now, suggesting fairly muted upside.

The bottom line is this is a stock to buy on the dip when fear is palpable. That window of opportunity will almost assuredly present once again because the stock has a history of volatility. When the time comes, keep in mind the fundamentals are likely to stay strong for the next half decade or so, and the dip is likely to be sentiment related or due to a poor quarterly earnings. That’s a better time to pounce.