Palo Alto Networks (PANW) stock has risen over 14% since the Aug. 14 release of its fiscal Q4 earnings. But it could still have further to go, as analysts have raised their targets. Moreover, shorting out-of-the-money puts works is a good play here.

PANW stock is at $201.31 in midday trading on Tuesday, Sept. 16. That is up 14.2% from $176.17 when it released earnings for the FY ending July 31.

I wrote a Barchart article about this on Aug. 19 ("Palo Alto Networks Stock is a Favorite of Value Investors After Its Latest Results.") I showed how PANW stock could be worth $213.00 per share based on its strong FCF margins.

In the Money Calls vs. PANW Stock

Moreover, I suggested buying long-term in-the-money (ITM) call options. How did that work out?

The 1-year ITM call option I highlighted was for September 18, 2026. I suggested buying the $165.00 call option, which was below the trading price of $184.25 trading price at the time (Aug. 19, 2025). 

So, it was “in-the-money” (ITM) by $19.45 (i.e., $184.25-$165.00), but the premium paid at the midpoint would have been much higher at $41.08.

(The advantage here was that 1 call controls 100 shares for an outlay of $4,108, rather than $18,425 for owning 100 shares of PANW).

Today, the midpoint price is $52.50. So the profit is:

  $5,250 - $4,108 = $1,142 profit

  $1,142 / $4,108 = 1.278 -1 = +27.8% in one month

But, PANW stock is up just +9.26% ($201.35/$184.25-1 = 1.0925). In other words, an investor would have made almost 3x the return in the past month with ITM calls.

So, it made sense to buy ITM call options with over 1 year left. (Earlier ITM calls would have had an even greater return).

What Should Investors Do Now?

Price Targets. First, let's update the price targets. For example, analysts now expect revenue to range between $10.51 billion for the year to July 2026 (about 9 months from now) and $11.91 billion for the year ending July 30, 2027.

That implies that the next 12 months (NTM) run rate revenue is $10.86 billion:

   ($10.51b x 0.75) +(11.91b x 0.25) = $7.8825 billion + $2.9775 billion = $10.86 billion run rate NTM revenue

Applying a 38.5% FCF margin (see my last article), FCF could reach almost $4.2 billion:

  $10.86b x 0.385 = $4.181 billion FCF (NTM)

That is higher than my previous estimate of $4.04 billion in NTM FCF. And using a 2.845% FCF yield (i.e., the same as a 35x multiple):

   $4.181b / 0.02845 = $147.0 billion mkt cap target

Today's market cap is $134.529 billion, according to Yahoo! Finance. So, it implies PANW stock is still worth 9.3% more:

  $201.31 x 1.093 = $220.03

That is slightly higher than my previous target of $213.00 per share in the last Barchart article.

Moreover, analysts have raised their target prices. Yahoo! Finance now shows that 53 analysts have an average of $214.21, and Barchart's mean survey is $215.29. Those are up from $213.49 and $213.22 a month ago, as seen in my last article.

In addition, AnaChart.com reports that 38 analysts have an average price target of $224.72. That is close to my $220 price target.

The bottom line is that there is still good upside left in PANW stock.

Shorting OTM Puts

One additional way to play this (along with ITM call purchases) is to set a lower potential buy-in price. This can be done by selling short out-of-the-money (OTM) puts in nearby expiry periods and then repeating the trade each month.

For example, the Oct. 17, 2025, expiry period shows that the $190.00 put option exercise price has a midpoint premium of $2.76. That provides a potential yield of 1.45% (i.e., $2.76/$190.00) for just 31 days.

The way this works is that an investor secures $1,900 with their brokerage firm. Then they can enter an order to “Sell to Open” 1 put contract at $190.00. The account will then immediately receive $276.00.

That means the investor has made $276/$1,900.00, or 1.45% for the next month. Even if PANW falls to $190.00 or lower on or before Oct. 17, 2025, the breakeven point for the PANW short-put investor is:

   $190-$2.76 = $187.24 breakeven point

That is 7.0% below today's trading price, so there is good downside protection.

And the upside is still there:

   $220.03/$187.24 = 1.175 -1 = +17.5% upside

Moreover, if you bought long-term calls, as shown above, this $2.76 in income can be repeated each month (depending on the OTM short-put play), and that can help reduce the overall cost of the long-term call purchase.

The bottom line is that PANW stock still looks undervalued. Now it makes sense to both buy long-term ITM calls and short OTM puts in nearby expiry periods.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.