You probably noticed that Tech stocks are screaming higher today on the heels of better than expected results from AMZN, GOOGL & MSFT. What you might have missed are two pockets within tech that are not participating. First is 3D printing stocks, with SSYS down 12% after pre-announcing worse than expected Q3 results, placing the stock down 67% on the year. Internet security, another once hot sub-sector within tech is under-performing today. FTNT reported worse than expected results and is down 20% on the day, dragging down FEYE and PANW with it, down 7% and 5% respectively.
FEYE could start to become interesting as a long candidate, purely for a potential consolidation play, as I discussed last month (read here), but it if the stock can’t rally in this market, it probably makes sense to be patient. $25 seems like the level, but there is no technical support below until you get to its Sept 2013 IPO price of $20:
But not all internet security stocks are created equal. While FEYE Is down 13% on the year, approaching all time lows as earnings losses continue to pile up, PANW is up 30% on the year, expected to print close to $2 in earnings in fiscal 2016 on 40% sales growth. PANW is not expected to report earnings until late November, but in the mean time the horrible price action of peers and the poor results from FTNT is not helping sentiment as PANW is down 20% from its all time high made n July, oh and you may recognize this little chart pattern:
Taking a slightly longer term view of PANW’s performance you see that the stock has recently broken the uptrend that has been in place since late 2013, and now sitting on key near term support at $160ish:
PANW has been a tough stock to attempt to short, until recently. Earnings events have also been positive catalysts for the stock as the stock has risen the day after results 10 out of 12 reports since going public in 2012:
So what’s so special about PANW? To be fair, the company is a leading vendor in one of the largest secular movements in infrastructure software in decades. The company’s brisk growth has been rewarded with an eye-popping valuation, and is often thrown around as a take-over candidate by the likes of CSCO, IBM, HPQ or ORCL. With an expected $1.3 billion in sales, PANW could be the sort of acquisition that could move the needle for one of the companies listed above if they thought there were big cross selling opportunities.
As for Trades:
If you thought that PANW holds here at support, and that upcoming earnings could be a positive catalyst for the stock, than the December 160/190 call spread for about $8.50 could make sense (stock ref $158).
On the flip-side if you think that the stock’s inability to keep pace with the broad market, and the data points from peers could lead to a sharp break at what could be a technical inflection point, then you might consider buying the Dec 155 / 130 put spread for about $7.50.