Intrinsic value of Palo Alto Networks - PANW

Previous Close

$131.07

  Intrinsic Value

$15.32

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

-87%

Previous close

$131.07

 
Intrinsic value

$15.32

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

-87%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PANW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 11.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  48.60
  26.30
  24.17
  22.25
  20.53
  18.97
  17.58
  16.32
  15.19
  14.17
  13.25
  12.43
  11.68
  11.02
  10.41
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.11
  6.00
Revenue, $m
  1,379
  1,742
  2,163
  2,644
  3,187
  3,791
  4,458
  5,185
  5,973
  6,819
  7,723
  8,682
  9,697
  10,765
  11,886
  13,059
  14,285
  15,563
  16,894
  18,279
  19,719
  21,216
  22,771
  24,387
  26,067
  27,813
  29,629
  31,518
  33,484
  35,532
  37,665
Variable operating expenses, $m
 
  1,953
  2,421
  2,957
  3,560
  4,233
  4,974
  5,783
  6,659
  7,600
  8,605
  9,656
  10,784
  11,972
  13,218
  14,524
  15,887
  17,308
  18,788
  20,328
  21,930
  23,594
  25,324
  27,121
  28,989
  30,931
  32,950
  35,051
  37,238
  39,515
  41,887
Fixed operating expenses, $m
 
  19
  20
  20
  21
  21
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
Total operating expenses, $m
  1,569
  1,972
  2,441
  2,977
  3,581
  4,254
  4,996
  5,806
  6,682
  7,624
  8,629
  9,681
  10,810
  11,998
  13,245
  14,552
  15,915
  17,337
  18,818
  20,358
  21,961
  23,626
  25,357
  27,155
  29,023
  30,966
  32,986
  35,088
  37,276
  39,554
  41,927
Operating income, $m
  -190
  -231
  -279
  -333
  -395
  -463
  -538
  -620
  -709
  -805
  -906
  -998
  -1,113
  -1,233
  -1,359
  -1,492
  -1,630
  -1,774
  -1,924
  -2,080
  -2,242
  -2,410
  -2,585
  -2,767
  -2,957
  -3,153
  -3,358
  -3,570
  -3,792
  -4,022
  -4,262
EBITDA, $m
  -147
  -205
  -250
  -302
  -360
  -425
  -496
  -574
  -658
  -749
  -845
  -948
  -1,056
  -1,171
  -1,290
  -1,416
  -1,547
  -1,683
  -1,826
  -1,974
  -2,127
  -2,287
  -2,453
  -2,626
  -2,805
  -2,992
  -3,186
  -3,388
  -3,598
  -3,816
  -4,044
Interest expense (income), $m
  0
  18
  32
  52
  75
  101
  130
  162
  196
  234
  274
  317
  363
  412
  463
  516
  572
  631
  692
  755
  821
  890
  961
  1,036
  1,113
  1,193
  1,276
  1,363
  1,453
  1,547
  1,645
Earnings before tax, $m
  -205
  -249
  -311
  -385
  -470
  -564
  -668
  -782
  -905
  -1,038
  -1,181
  -1,316
  -1,476
  -1,645
  -1,822
  -2,008
  -2,202
  -2,404
  -2,615
  -2,835
  -3,063
  -3,300
  -3,547
  -3,803
  -4,069
  -4,346
  -4,634
  -4,933
  -5,245
  -5,569
  -5,907
Tax expense, $m
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -226
  -249
  -311
  -385
  -470
  -564
  -668
  -782
  -905
  -1,038
  -1,181
  -1,316
  -1,476
  -1,645
  -1,822
  -2,008
  -2,202
  -2,404
  -2,615
  -2,835
  -3,063
  -3,300
  -3,547
  -3,803
  -4,069
  -4,346
  -4,634
  -4,933
  -5,245
  -5,569
  -5,907

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,286
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,858
  2,639
  3,277
  4,006
  4,828
  5,744
  6,754
  7,856
  9,050
  10,332
  11,701
  13,155
  14,692
  16,310
  18,009
  19,787
  21,644
  23,581
  25,597
  27,696
  29,877
  32,145
  34,501
  36,950
  39,495
  42,141
  44,892
  47,755
  50,734
  53,836
  57,068
Adjusted assets (=assets-cash), $m
  1,572
  2,639
  3,277
  4,006
  4,828
  5,744
  6,754
  7,856
  9,050
  10,332
  11,701
  13,155
  14,692
  16,310
  18,009
  19,787
  21,644
  23,581
  25,597
  27,696
  29,877
  32,145
  34,501
  36,950
  39,495
  42,141
  44,892
  47,755
  50,734
  53,836
  57,068
Revenue / Adjusted assets
  0.877
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Average production assets, $m
  80
  101
  125
  153
  185
  220
  259
  301
  346
  395
  448
  504
  562
  624
  689
  757
  829
  903
  980
  1,060
  1,144
  1,231
  1,321
  1,414
  1,512
  1,613
  1,718
  1,828
  1,942
  2,061
  2,185
Working capital, $m
  927
  -174
  -216
  -264
  -319
  -379
  -446
  -519
  -597
  -682
  -772
  -868
  -970
  -1,076
  -1,189
  -1,306
  -1,429
  -1,556
  -1,689
  -1,828
  -1,972
  -2,122
  -2,277
  -2,439
  -2,607
  -2,781
  -2,963
  -3,152
  -3,348
  -3,553
  -3,766
Total debt, $m
  500
  912
  1,486
  2,142
  2,882
  3,707
  4,616
  5,608
  6,682
  7,836
  9,068
  10,376
  11,760
  13,216
  14,745
  16,345
  18,017
  19,760
  21,575
  23,463
  25,426
  27,467
  29,588
  31,792
  34,082
  36,464
  38,940
  41,516
  44,197
  46,989
  49,898
Total liabilities, $m
  1,963
  2,375
  2,949
  3,605
  4,345
  5,170
  6,079
  7,071
  8,145
  9,299
  10,531
  11,839
  13,223
  14,679
  16,208
  17,808
  19,480
  21,223
  23,038
  24,926
  26,889
  28,930
  31,051
  33,255
  35,545
  37,927
  40,403
  42,979
  45,660
  48,452
  51,361
Total equity, $m
  895
  264
  328
  401
  483
  574
  675
  786
  905
  1,033
  1,170
  1,315
  1,469
  1,631
  1,801
  1,979
  2,164
  2,358
  2,560
  2,770
  2,988
  3,214
  3,450
  3,695
  3,949
  4,214
  4,489
  4,775
  5,073
  5,384
  5,707
Total liabilities and equity, $m
  2,858
  2,639
  3,277
  4,006
  4,828
  5,744
  6,754
  7,857
  9,050
  10,332
  11,701
  13,154
  14,692
  16,310
  18,009
  19,787
  21,644
  23,581
  25,598
  27,696
  29,877
  32,144
  34,501
  36,950
  39,494
  42,141
  44,892
  47,754
  50,733
  53,836
  57,068
Debt-to-equity ratio
  0.559
  3.460
  4.540
  5.350
  5.970
  6.450
  6.830
  7.140
  7.380
  7.580
  7.750
  7.890
  8.000
  8.100
  8.190
  8.260
  8.320
  8.380
  8.430
  8.470
  8.510
  8.540
  8.580
  8.600
  8.630
  8.650
  8.670
  8.690
  8.710
  8.730
  8.740
Adjusted equity ratio
  -0.249
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -226
  -249
  -311
  -385
  -470
  -564
  -668
  -782
  -905
  -1,038
  -1,181
  -1,316
  -1,476
  -1,645
  -1,822
  -2,008
  -2,202
  -2,404
  -2,615
  -2,835
  -3,063
  -3,300
  -3,547
  -3,803
  -4,069
  -4,346
  -4,634
  -4,933
  -5,245
  -5,569
  -5,907
Depreciation, amort., depletion, $m
  43
  27
  29
  32
  35
  38
  42
  46
  51
  56
  61
  50
  56
  62
  69
  76
  83
  90
  98
  106
  114
  123
  132
  141
  151
  161
  172
  183
  194
  206
  218
Funds from operations, $m
  1,081
  -222
  -282
  -354
  -435
  -525
  -626
  -735
  -854
  -982
  -1,120
  -1,265
  -1,420
  -1,582
  -1,753
  -1,932
  -2,119
  -2,314
  -2,517
  -2,729
  -2,949
  -3,177
  -3,415
  -3,662
  -3,918
  -4,185
  -4,462
  -4,750
  -5,051
  -5,363
  -5,689
Change in working capital, $m
  423
  -36
  -42
  -48
  -54
  -60
  -67
  -73
  -79
  -85
  -90
  -96
  -101
  -107
  -112
  -117
  -123
  -128
  -133
  -138
  -144
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213
Cash from operations, $m
  658
  -186
  -240
  -305
  -380
  -465
  -559
  -663
  -776
  -898
  -1,029
  -1,169
  -1,318
  -1,475
  -1,641
  -1,815
  -1,996
  -2,186
  -2,384
  -2,590
  -2,805
  -3,028
  -3,259
  -3,500
  -3,750
  -4,010
  -4,280
  -4,562
  -4,854
  -5,158
  -5,475
Maintenance CAPEX, $m
  0
  -8
  -10
  -13
  -15
  -18
  -22
  -26
  -30
  -35
  -40
  -45
  -50
  -56
  -62
  -69
  -76
  -83
  -90
  -98
  -106
  -114
  -123
  -132
  -141
  -151
  -161
  -172
  -183
  -194
  -206
New CAPEX, $m
  -73
  -21
  -24
  -28
  -31
  -35
  -39
  -42
  -46
  -49
  -52
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -90
  -94
  -97
  -101
  -105
  -110
  -114
  -119
  -124
Cash from investing activities, $m
  -339
  -29
  -34
  -41
  -46
  -53
  -61
  -68
  -76
  -84
  -92
  -101
  -109
  -118
  -127
  -137
  -147
  -157
  -167
  -178
  -190
  -201
  -213
  -226
  -238
  -252
  -266
  -282
  -297
  -313
  -330
Free cash flow, $m
  319
  -215
  -274
  -346
  -427
  -519
  -620
  -731
  -851
  -982
  -1,121
  -1,270
  -1,427
  -1,594
  -1,768
  -1,952
  -2,143
  -2,343
  -2,552
  -2,769
  -2,994
  -3,229
  -3,472
  -3,726
  -3,989
  -4,263
  -4,547
  -4,843
  -5,151
  -5,471
  -5,805
Issuance/(repayment) of debt, $m
  0
  412
  574
  656
  740
  825
  909
  992
  1,074
  1,154
  1,232
  1,309
  1,383
  1,457
  1,529
  1,600
  1,671
  1,743
  1,815
  1,888
  1,963
  2,041
  2,121
  2,204
  2,291
  2,381
  2,476
  2,576
  2,681
  2,792
  2,909
Issuance/(repurchase) of shares, $m
  45
  388
  375
  458
  552
  655
  769
  892
  1,025
  1,167
  1,318
  1,461
  1,630
  1,806
  1,992
  2,185
  2,387
  2,598
  2,817
  3,045
  3,281
  3,527
  3,782
  4,048
  4,324
  4,611
  4,909
  5,220
  5,543
  5,879
  6,230
Cash from financing (excl. dividends), $m  
  39
  800
  949
  1,114
  1,292
  1,480
  1,678
  1,884
  2,099
  2,321
  2,550
  2,770
  3,013
  3,263
  3,521
  3,785
  4,058
  4,341
  4,632
  4,933
  5,244
  5,568
  5,903
  6,252
  6,615
  6,992
  7,385
  7,796
  8,224
  8,671
  9,139
Total cash flow (excl. dividends), $m
  359
  585
  674
  769
  865
  961
  1,058
  1,153
  1,247
  1,339
  1,429
  1,500
  1,586
  1,669
  1,752
  1,834
  1,916
  1,998
  2,080
  2,164
  2,250
  2,339
  2,431
  2,526
  2,625
  2,729
  2,838
  2,953
  3,073
  3,200
  3,334
Retained Cash Flow (-), $m
  -407
  -388
  -375
  -458
  -552
  -655
  -769
  -892
  -1,025
  -1,167
  -1,318
  -1,461
  -1,630
  -1,806
  -1,992
  -2,185
  -2,387
  -2,598
  -2,817
  -3,045
  -3,281
  -3,527
  -3,782
  -4,048
  -4,324
  -4,611
  -4,909
  -5,220
  -5,543
  -5,879
  -6,230
Prev. year cash balance distribution, $m
 
  770
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  967
  300
  310
  313
  306
  289
  261
  223
  172
  111
  39
  -44
  -137
  -240
  -351
  -472
  -600
  -737
  -880
  -1,031
  -1,188
  -1,352
  -1,522
  -1,699
  -1,881
  -2,071
  -2,267
  -2,470
  -2,679
  -2,896
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  927
  274
  270
  258
  237
  210
  177
  139
  99
  58
  18
  -19
  -52
  -80
  -103
  -120
  -131
  -136
  -136
  -131
  -123
  -112
  -100
  -87
  -73
  -60
  -49
  -38
  -29
  -22
Current shareholders' claim on cash, %
  100
  76.3
  66.8
  58.6
  51.5
  45.4
  40.0
  35.4
  31.3
  27.7
  24.6
  21.8
  19.4
  17.3
  15.4
  13.8
  12.3
  11.0
  9.8
  8.7
  7.8
  7.0
  6.3
  5.6
  5.0
  4.5
  4.0
  3.6
  3.2
  2.9
  2.6

Palo Alto Networks, Inc. provides security platform solutions to enterprises, service providers, and government entities worldwide. Its platform includes Next-Generation Firewall that delivers application, user, and content visibility and control, as well as protection against network-based cyber threats; Advanced Endpoint Protection, which prevents cyber attacks that exploit software vulnerabilities on various fixed and virtual endpoints and servers; and Threat Intelligence Cloud, which offers central intelligence capabilities, security for software as a service applications, and automated delivery of preventative measures against cyber attacks. The company provides firewall appliances; Panorama, a security management solution for the control of appliances deployed on an end-customer’s network as a virtual or a physical appliance; and Virtual System Upgrades, which are available as an extensions to the virtual system capacity that ships with the physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource filtering, malware and persistent threat, laptop and mobile device, and firewall protection services, as well as cyber attack, threat intelligence, and content control services. In addition, the company provides support and maintenance services; and professional services, including application traffic management, solution design and planning, configuration, and firewall migration, as well as provides online and classroom-style education training services. Palo Alto Networks, Inc. primarily sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries comprising education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. The company was founded in 2005 and is headquartered in Santa Clara, California.

FINANCIAL RATIOS  of  Palo Alto Networks (PANW)

Valuation Ratios
P/E Ratio -52.5
Price to Sales 8.6
Price to Book 13.3
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow 20.3
Growth Rates
Sales Growth Rate 48.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 114.7%
Cap. Spend. - 3 Yr. Gr. Rate 27.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 55.9%
Total Debt to Equity 55.9%
Interest Coverage 0
Management Effectiveness
Return On Assets -9.4%
Ret/ On Assets - 3 Yr. Avg. -13.6%
Return On Total Capital -19.1%
Ret/ On T. Cap. - 3 Yr. Avg. -24.6%
Return On Equity -32.7%
Return On Equity - 3 Yr. Avg. -42.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 73.2%
Gross Margin - 3 Yr. Avg. 73.2%
EBITDA Margin -11.7%
EBITDA Margin - 3 Yr. Avg. -19.8%
Operating Margin -13.8%
Oper. Margin - 3 Yr. Avg. -21.4%
Pre-Tax Margin -14.9%
Pre-Tax Margin - 3 Yr. Avg. -22.9%
Net Profit Margin -16.4%
Net Profit Margin - 3 Yr. Avg. -24%
Effective Tax Rate -10.2%
Eff/ Tax Rate - 3 Yr. Avg. -5.9%
Payout Ratio 0%

PANW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PANW stock intrinsic value calculation we used $1379 million for the last fiscal year's total revenue generated by Palo Alto Networks. The default revenue input number comes from 2016 income statement of Palo Alto Networks. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PANW stock valuation model: a) initial revenue growth rate of 26.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for PANW is calculated based on our internal credit rating of Palo Alto Networks, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Palo Alto Networks.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PANW stock the variable cost ratio is equal to 112.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19 million in the base year in the intrinsic value calculation for PANW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Palo Alto Networks.

Corporate tax rate of 27% is the nominal tax rate for Palo Alto Networks. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PANW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PANW are equal to 5.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Palo Alto Networks operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PANW is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $895 million for Palo Alto Networks - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 90.444 million for Palo Alto Networks is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Palo Alto Networks at the current share price and the inputted number of shares is $11.9 billion.

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Stock chart of PANW Financial statements of PANW
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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