Buy PANW Stock Ahead of Its Earnings?

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CANADA – 2025/01/28: In this photo illustration, the Palo Alto Networks logo is seen displayed on a smartphone screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

The global cybersecurity leader – Palo Alto Networks (NASDAQ:PANW) – is set to announce its fiscal Q4 earnings on Monday, August 18 (fiscal year ends in July). Traditionally, the company’s stock has shown strong performance on the day following its earnings reports. Over the past five years, it has recorded a positive one-day return in 65% of cases. The median positive return was 7.7%, while the highest one-day increase was 18.6%.

Although the actual results in comparison to predictions will be the most significant factor, being aware of these historical trends can offer event-driven traders a competitive advantage. Here are two primary strategies:

• Pre-Earnings Position: You can leverage historical probabilities to position yourself in the stock prior to the earnings announcement.
• Post-Earnings Position: You can examine the relationship between immediate and medium-term returns after the earnings are disclosed to inform your trading choices.

Analysts have a consensus estimate of $0.89 per share in earnings on $2.5 billion in revenue. This represents an increase from the same quarter last year when the company reported earnings of $0.75 per share on $2.19 billion in revenue.

From a fundamentals perspective, Palo Alto Networks currently has a market capitalization of $112 billion. Over the last twelve months, the company produced $8.9 billion in revenue, along with an operating profit of $984 million and a net income of $1.2 billion.

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See earnings reaction history of all stocks

Palo Alto Networks’ Historical Odds Of Positive Post-Earnings Return

Here are some insights on one-day (1D) post-earnings returns:

• There are 20 earnings data points recorded over the last five years, with 13 positive and 7 negative one-day (1D) returns noted. In summary, positive 1D returns were observed about 65% of the time.
• However, this percentage drops to 58% when we consider data from the last 3 years instead of 5.
• The median of the 13 positive returns = 7.7%, and the median of the 7 negative returns = -3.7%

Additional data for observed 5-Day (5D) and 21-Day (21D) returns post earnings are summarized along with the statistics in the table below. Related – Fortinet: FTNT Stock To $150?

Correlation Between 1D, 5D, and 21D Historical Returns

A relatively lower-risk strategy (though not effective if the correlation is weak) is to recognize the connection between short-term and medium-term returns post earnings, identify a pairing with the highest correlation, and carry out the appropriate trade. For instance, if 1D and 5D display the strongest correlation, a trader can take a “long” position for the next 5 days if the 1D post-earnings return is favorable. Here is some correlation data based on a 5-year and a 3-year (more recent) history. Note that the correlation 1D_5D indicates the correlation between 1D post-earnings returns and subsequent 5D returns. Also, refer to – Buy or Sell PANW Stock?

Is There Any Correlation With Peer Earnings?

At times, peer performance can impact the post-earnings stock reaction. In fact, the pricing may commence before the earnings are declared. Here is some historical data detailing the prior post-earnings performance of Palo Alto Networks stock in comparison with the performance of peers that reported earnings just before Palo Alto Networks. For a fair comparison, peer stock returns also represent post-earnings one-day (1D) returns.

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