Although they don’t like to talk about it, organizations are vulnerable to hackers looking to steal data or simply to embarrass their targets by scrawling grafitti on their web sites. For decades, companies have installed so-called firewalls to keep this from happening.  But big changes in technology have opened up new vulnerabilities and the tit-for-tat battle between the white and black hats continues. In its April 6th IPO prospectus, Palo Alto Networks (PAN), a fast-growing player in the firewall market revealed some compelling facts about its success — including its pedigree from a long-time firewall leader, Check Point Software (CHKP).  In looking at potential investments, I like to consider five factors: the attractiveness of the industry in which the company competes, the market position of the company in that industry, the quality of the management team, the company’s financial performance and prospects, and its valuation.  Based on these factors, PAN looks like an interesting investment opportunity. After all, it competes in an attractive industry, its market share is expanding much faster than the industry, its management has an excellent track record, and it has even started to earn a profit. And by one estimate, PAN’s valuation is likely to be in line with that of Check Point.  Although it’s not really fair to compare a long-established market leader with a company poised for an IPO, as an investor you will soon have a chance to do so. That’s why my reasoning for this analysis is partially based on a comparison with Check Point.  It looks to me as though Palo Alto Networks is shaping up to be among 2012′s more solid IPOs. Given its potential to continue outgrowing the industry, its competitively superior product, and its strong management team, it is easier to envision this stock going up after it is sold to the public.  Far more than Facebook – with its Price/Sales ratio of 20 on slowing growth — PAN looks like it could be fairly valued and well-positioned to maintain its high growth. And that makes it a much better pillar on which to build confidence in the IPO market.
Unlike Facebook, Palo Alto Networks, a security software company, has the rapid growth potential, profitability, and reasonable valuation that could restore individual investor confidence in the IPO market