Palo Alto Networks (PANW -0.83%) is without a doubt one of the top suppliers of cybersecurity solutions. With Strata, a new security platform that offers next-generation firewall solutions, Cortex, its endpoint security solution that is powered by artificial intelligence, and Prisma, its cloud-based security services, the company offers an integrated three-pronged strategy to combat the growing threat of cybersecurity.
The company’s strong financial results have given rise to a rising stock cost. Palo Alto Networks shares have increased by 55% over the last year, defying the current general market dip, but this is only the beginning. The stock has increased dramatically over the last three, five, and ten years, respectively, by 179%, 3,305%, and 801%.
For the first time in the history of the business, Palo Alto Networks revealed intentions to split its shares on Tuesday. Investors are now reevaluating the cybersecurity pioneer and its stock as a result of this event. Recap the details of a stock split and decide whether to acquire Palo Alto Networks shares.
The specifics
Palo Alto Networks announced on Tuesday that their board of directors had authorized a 3-for-1 stock split of its most common shares that are in the form of a stock dividend, which means shareholders would receive extra shares of stock. The announcement came along with the financial report for its fiscal fourth quarter, which ended on July 31. (not a dividend that is in the usual sense).
After the close of business on September 6, two more shares will be issued to each shareholder of record for each share they already possessed. The shares will start trading with split adjustments on September 14.
Investors in Palo Alto Networks won’t need to do anything else to get the extra shares. Historically, investment brokerages have taken care of the technicalities, and the freshly issued shares would just show up in shareholders’ accounts.
It’s important to keep in mind that these extra shares could not show right away after the market close on September 13. From brokerage to brokerage, the time for the stock’s appearance may vary, and it might take several days for the new shares to show up in investment accounts.
The procedure could be better understood by putting some numbers in the equation. After the split, shareholders will have three shares, each worth $190, for every share of Palo Alto Networks stock they already own, which is trading for around $570 per share as of this writing.
Do stock splits assist investors?
From a mathematical perspective, the overall value of the investment owned by each investor remains constant, as it shows in the example given above. The price of one Palo Alto Networks share, which is presently trading at $570, will be equivalent to the price of three post-split shares, which will be priced at $190 and (3 x $190 = $570). Similar to cutting a pizza, if the pie is cut into six or twelve pieces, the quantity of pie that is available for consumption remains the same. Investors in Palo Alto Networks will similarly just have more shares available at reduced prices.
However, there is a psychological factor at work with investors that, at least in the short term, may sometimes boost demand for the stock. For instance, some potential stockholders would not have been able or willing to pay over $600 a share for the stock, but they might be far more eager to do so for less than $200. Although the early rise in stock price might be alluring, history indicates that the boost may not last long and eventually give way to the company’s performance.
However, a brief glance at Palo Alto Networks’ most recent financial data reveals a stock that is moving and has promising commercial and financial prospects, indicating that investors may want to take another look at the firm.
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