Palo Alto Networks Rises 8% in 3 Months: How to Play the Stock
Palo Alto Networks, Inc. PANW shares have gained 7.8% in the past three months, underperforming the Zacks Security industry's growth of 14.1%. The stock has also underperformed its industry peers and competitors, including CyberArk CYBR, CrowdStrike CRWD and Zscaler ZS. In the past three months, shares of CyberArk, CrowdStrike and Zscaler have gained 12.1%, 31.2% and 50.7%, respectively.
The underperformance of Palo Alto Networks' share price raises the question: Should investors buy, hold or sell PANW stock?
3 Month Price Return Performance
PANW Suffers From Slowing Sales Growth
Palo Alto Networks is experiencing a slowdown in its sales growth. Notably, the company's revenue growth rate has been in the mid-teen percentage range over the past year, a sharp contrast from the mid-20s percentage in fiscal 2023. In the recently reported financial results for the third quarter of fiscal 2025, revenues grew 15.7% year over year. Also, in the first two quarters of the fiscal year, the growth rate had been around 14%.
Another concern is the slowing growth of Next-Generation Security ('NGS') annual recurring revenue (ARR), a key metric for Palo Alto Networks' long-term financial health. The company has reported five consecutive quarters of decelerating NGS ARR growth, with fiscal 2025 projections suggesting a further slowdown to 31-32% growth compared to the 45%+ growth in previous years. While this is still impressive, the decelerating momentum has disappointed investors, considering the rising demand for cloud security and AI-powered solutions. However, for investors, not everything is gloom and doom.
PANW Benefits From Positive Industry Trends
Despite the challenges, Palo Alto Networks is well-positioned to benefit from the rising demand for advanced cybersecurity solutions. According to Fortune Business Insights, the global cybersecurity market is projected to expand from $193.73 billion in 2024 to $562.72 billion by 2032, representing a massive addressable market. As cyber threats become more sophisticated, enterprises are increasingly prioritizing multi-layered security platforms, a trend that directly contributes to PANW's strengths.
The company's continued innovation in AI, automation and cloud security reinforces its competitive lead. Its strategic partnership with NVIDIA to develop AI-powered private 5G security solutions reflects its focus on next-generation technologies. This collaboration strengthens PANW's capabilities in protecting data and networks in 5G environments, a rapidly growing market segment.
Moreover, Palo Alto Networks' transition to a platform-based model has been a game-changer. By bundling multiple security products into a comprehensive cybersecurity platform, the company generates recurring revenue streams, boosting financial stability and customer stickiness.
PANW's platformization strategy has enabled PANW to secure over 90 net new platform deals in the third quarter of fiscal 2025 alone. On its recent earnings call, PANW also announced that its customers with multiple platformizations grew nearly 70% year over year, contributing massively to the top line. The Zacks Consensus Estimate for PANW's fiscal 2025 revenues is pegged at $9.18 billion, indicating a year-over-year rise of 14.40%.
Valuation: PANW Stock Trades at Discount
Palo Alto Networks is currently trading at a low price-to-sales (P/S) multiple compared to the industry. PANW's forward 12-month P/S ratio sits at 13.06X, lower than the industry's forward 12-month P/S ratio of 14.83X.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
PANW stock also trades at a lower P/S multiple compared with other industry peers, including CyberArk, CrowdStrike and Zscaler. At present, CyberArk, CrowdStrike and Zscaler have P/S multiples of 13.41X, 23.14X and 15.25X, respectively.
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 and NGS ARR growth rates suggest that near-term upside may be limited.
Despite these headwinds, Palo Alto Networks' discounted valuation offers some downside protection. This discounted pricing makes PANW an attractive long-term hold, particularly for investors seeking exposure to cybersecurity growth at a fair price.
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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Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report
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Zscaler, Inc. (ZS): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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