Palo Alto Networks, Inc. (PANW – Free Report) has delivered a 12.7% year-to-date (YTD) gain, but this underperforms the Zacks Security industry, which has risen 19.8% over the same period. Key competitors like CrowdStrike Holdings, Inc. (CRWD – Free Report) , CyberArk Software Ltd. (CYBR – Free Report) and Fortinet Inc. (FTNT – Free Report) have all outpaced PANW’s gains, reflecting investor concerns over slowing revenue growth and a deceleration in next-generation security (NGS) annual recurring revenues (ARR).
YTD Price Return Performance
Image Source: Zacks Investment Research
Despite these near-term challenges, Palo Alto Networks remains a strong long-term investment, thanks to its leadership in cybersecurity, innovation in AI-driven security solutions and strategic shift toward a platform-based model. While the immediate upside may be limited, the stock is not one to sell, making it a hold for now.
Why Did Palo Alto Networks Underperform?
Palo Alto Networks has faced a noticeable slowdown in revenue growth, raising concerns about its near-term trajectory. In fiscal 2024, revenues grew 16% year over year, a steep decline from the 25% growth recorded in fiscal 2023.
This deceleration is expected to continue into fiscal 2025, with the company forecasting full-year revenue growth of just 14% in the range of $9.14 billion-$9.19 billion. So far, first-quarter and second-quarter revenue growth has hovered around 14%, in line with this cautious outlook. Analysts project mid-teen percentage growth through fiscal 2026, reinforcing the view that PANW’s rapid expansion phase is cooling off.
Another concern is the slowing growth of NGS ARR, a key metric for Palo Alto Networks’ long-term financial health. The company has reported four consecutive quarters of declining NGS ARR growth, with fiscal 2025 projections suggesting a further slowdown to 31-32% growth. While this is still impressive, we had hoped for stronger momentum, given the increasing demand for cloud security and AI-driven cybersecurity solutions.
Image Source: Palo Alto Networks, Inc.
The Long-Term Outlook Remains Strong for PANW
Despite these near-term challenges, Palo Alto Networks is well-positioned for long-term growth as cybersecurity threats continue to become more complex and frequent. According to a Fortune Business Insights report, the global cybersecurity market is expected to expand from $193.73 billion in 2024 to $562.72 billion by 2032, creating a massive opportunity for companies with best-in-class security solutions.
Palo Alto Networks has continued to innovate, focusing on AI, automation and cloud security to stay ahead of the competition. Its partnership with NVIDIA to develop AI-driven private 5G security solutions highlights its commitment to emerging technologies and next-generation security demands.
The company’s platformization strategy has also been a game-changer. Instead of relying on one-off product sales, Palo Alto Networks has transitioned to a bundled cybersecurity platform approach, which enhances recurring revenues and customer retention. This strategy ensures financial stability and predictable growth, making PANW a top choice for enterprises seeking long-term security solutions.
PANW’s Valuation is Becoming More Attractive
For investors looking for a high-quality cybersecurity stock, Palo Alto Networks is trading at a more reasonable valuation compared to its peers. The stock’s forward 12-month price-to-earnings (P/E) ratio of 59.97 is significantly lower than the industry average of 110.98, suggesting that PANW is not as overvalued as some of its competitors. CrowdStrike and CyberArk are trading at a forward 12-month P/E ratio of 102.01 and 110.24, respectively.
Similarly, its forward 12-month price-to-sales (P/S) ratio of 13.6 is also below the industry average of 15.01, reinforcing the view that investors are getting a solid long-term play at a better price than before. While these valuations aren’t cheap by traditional standards, they reflect the company’s strong fundamentals and premium positioning in the cybersecurity space.
Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
Conclusion: Hold PANW Stock for Now
Palo Alto Networks remains a leader in cybersecurity, with a strong long-term growth trajectory, continued AI-driven innovation and a shift toward a more predictable recurring revenue model. However, slowing revenue growth and NGS ARR deceleration suggest that near-term upside may be limited.
For now, investors should hold PANW stock, watching for any signs of re-acceleration in revenue growth or an improved outlook on NGS ARR before considering adding more exposure. While long-term prospects remain highly attractive, the stock’s recent underperformance and cautious outlook warrant patience rather than aggressive buying.
Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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