Palo Alto Networks Rises 8% in 3 Months: How to Play the Stock

Core Viewpoint - Palo Alto Networks, Inc. (PANW) has experienced a 7.8% increase in share price over the past three months, underperforming the Zacks Security industry's growth of 14.1% and its competitors [1][5] Group 1: Sales Growth and Performance - Palo Alto Networks is facing a slowdown in sales growth, with revenue growth rates in the mid-teens percentage range over the past year, down from mid-20s in fiscal 2023 [3][4] - In the third quarter of fiscal 2025, revenues grew 15.7% year over year, while the first two quarters saw growth rates around 14% [3] - Next-Generation Security (NGS) annual recurring revenue (ARR) growth has decelerated for five consecutive quarters, with fiscal 2025 projections suggesting a slowdown to 31-32% growth compared to over 45% in previous years [4][5] Group 2: Industry Trends and Opportunities - Despite challenges, Palo Alto Networks is positioned to benefit from rising demand for advanced cybersecurity solutions, with the global cybersecurity market projected to grow from $193.73 billion in 2024 to $562.72 billion by 2032 [6] - The company is focusing on AI, automation, and cloud security innovations, including a strategic partnership with NVIDIA to develop AI-powered private 5G security solutions [7] - Transitioning to a platform-based model has allowed Palo Alto Networks to bundle multiple security products, generating recurring revenue streams and enhancing customer retention [8][9] Group 3: Financial Metrics and Valuation - Palo Alto Networks secured over 90 net new platform deals in the third quarter of fiscal 2025, with customers utilizing multiple platformizations growing nearly 70% year over year [9] - The Zacks Consensus Estimate for PANW's fiscal 2025 revenues is $9.18 billion, indicating a year-over-year rise of 14.40% [9] - Currently, PANW trades at a lower price-to-sales (P/S) ratio of 13.06X compared to the industry average of 14.83X and peers like CyberArk, CrowdStrike, and Zscaler [10][13] Group 4: Conclusion and Outlook - Palo Alto Networks remains a leader in cybersecurity with a strong long-term growth trajectory, but slowing revenue and NGS ARR growth rates suggest limited near-term upside [14] - The discounted valuation of PANW offers some downside protection, making it an attractive long-term hold for investors seeking exposure to cybersecurity growth at a fair price [15]