Tech Sell Off: 1 Share Paid Stock You regret not buying on the dip

of Nasdaq-100 The tech index remains firmly in bear market territory with a 25% loss for the year so far, despite a convincing rebound over the past two months. It’s a difficult situation for investors to navigate, but investing in quality companies can provide the best opportunity when the broader market recovers – and eventually, it will.

During this recession, many companies are trying to create more value for their investors. Raising stock payouts and introducing stock buyback plans to return cash to shareholders are two popular moves, and some companies are doing stock splits. A stock split is simply designed to reduce the value of a company’s stock. And while it adds no value to the business, it makes the stock accessible to smaller investors, attracting new buyers who were unwilling or unable to buy the shares at their previous price tag.

Cyber ​​security giant Palo Alto Networks (PANW 0.12%) It is set to execute a 3-for-1 split on September 13, which, as of this writing, will triple the number of shares outstanding and reduce the stock price from $557.11 to $185.70.

What is a stock dividend, and what is not

It’s only natural that investors are now curious about stock dividends. After all, the most famous technology companies in the world have used it in 2022, including Amazon, Tesla, Shopifyand Google Parent Alphabet.

When spending hundreds or even thousands of dollars to buy a single share in a company, it can seem unattractive to small investors, leaving most of the stock in the hands of large funds and institutions. Additionally, Palo Alto wants to make its stock cheaper so that employees can more easily participate in stock purchase plans. For those reasons, the division is very reasonable.

The move does not change the fundamental value of anyone’s Palo Alto holdings. Current investors simply receive two more shares each, and in return the value of each share declines proportionately. If an investor owns one share worth $557.11 now, they will have three shares worth $185.70 each after the stock split takes effect on September 13.

So a stock dividend is not a good reason to buy shares in a company. But Palo Alto Networks offers many good reasons, and here’s what they are.

Palo Alto is a leader in cyber security.

An estimate by Cyber ​​Security Ventures suggests that global cyber security spending will exceed $1.75 trillion between 2021 and 2025. To support this, a recent study by Wall Street Investment Bank Morgan Stanley Even in the midst of a recession, large companies are not planning to reduce their cyber security spending, he said.

why? According to consulting firm PwC, among some of the world’s CEOs, cyber risk is ranked No. 1 in the list of potential threats to corporate income. As most companies now operate in the digital realm, the attack surface is much larger than ever and protecting virtual assets is critical.

That’s why investors should own stock in Palo Alto Networks, a stock split aside. The company is an industry leader in cybersecurity across the board, with a portfolio of products designed to protect everything from cloud networks to the edge devices that employees use in their day-to-day operations.

Palo Alto is a supplier to some of the world’s largest corporations. In fact, at the conclusion of fiscal 2022 (which ended June 30), the company had a whopping 1,240 customers spending $1 million or more, a 25 percent increase over the previous year. Not surprisingly, Palo Alto ranked at the top of the field in 11 different cybersecurity categories.

Wall Street loves Palo Alto stock

Palo Alto had revenue of $5.5 billion in fiscal 2022 and a non-GAAP (adjusted) profit of $823 million, or $7.56 per share. The non-GAAP measure excludes one-time expenses such as acquisitions and stock-based compensation to give investors a better idea of ​​how the actual business is performing.

It gives Palo Alto a price-to-earnings multiple of 74, relative to the Nasdaq-100 index and a P/E of 26.7.

However, Wall Street is bullish on the company. Of the 35 analysts covering Palo Alto stock, 29 have given it a strong buy rating. The remaining six are divided equally between overweight and holding levels. Given the significant opportunity in cybersecurity for the long term, Wall Street is betting the company will eventually grow to its valuation, so the best returns could come in five to 10 years.

The stock is down 12 percent from an all-time high amid a technology selloff, a good opportunity to buy a dip on a strong company.