Jim Cramer Would Take Profits In Palo Alto Networks Inc

On CNBC's Mad Money, Jim Cramer recommended to his viewers to take profits in Palo Alto Networks Inc PANW. He started recommending a purchase of this stock before it went public in 2012 and since then it recorded a 158 percent gain. He still believes that cyber security is fabulous long term growth sector and the company is the best in the space, but the stock has become expensive and it is time to sell. Palo Alto Networks Inc is currently trading at more than 100 times next year's earnings as it should make roughly $1 per share in 2015. Cramer finds this valuation rich even for a company with a 42 percent long term growth rate. He would never pay more than twice the growth rate, even for the best stocks. Cramer rarely decides to sell a stock just on valuation, he needs more to do so. When it comes to Palo Alto Networks Inc a big problem is insider selling. In the last two months, he noticed unusually high volume of insider selling, which makes him concerned because it is happening at the time when the Wall Street is highly optimistic about the stock. Cramer's biggest reason for a selling decision of the stock are convertible bonds that can be converted to equity if the stock reaches $110. If that happens Palo Alto Networks Inc's shares count would increase for 5 million shares. With stock backed compensations, the dilution could increase to 20% and that is too much for current shareholders.