Palo Alto's Stock Sinks Despite Solid Revenue Growth. Should Investors Buy the Dip?

Core Viewpoint - Palo Alto Networks has reported solid fiscal Q1 results for 2026, but its stock has not seen significant movement, raising questions about potential buying opportunities [1]. Financial Performance - For fiscal Q1 2026, Palo Alto Networks achieved a revenue increase of 16% year over year, reaching $2.47 billion, which was at the high end of its forecast [2]. - Service revenue rose by 14% to over $2 billion, with both subscription and support revenue increasing by 14% [2]. - Product revenue increased by 23% to $343 million [2]. - Adjusted earnings per share (EPS) rose by 19% year over year to $0.93, exceeding guidance [6]. Strategic Developments - The company is focusing on a platformization strategy, having secured 16 new platformization deals in the quarter [4]. - The XSIAM platform saw its number of deals double, including a significant $100 million deal with a U.S. telecom [4]. - Next-generation security annual recurring revenue (ARR) increased by 29% to $5.85 billion, with SASE ARR climbing 34% to over $1.3 billion [5]. Future Guidance - Remaining performance obligations (RPO) rose by 24% year over year to $15.5 billion, aligning with forecasts [6]. - The company has slightly raised its full-year guidance for revenue and EPS [6]. - Fiscal Q2 revenue is forecasted between $2.57 billion and $2.59 billion, with full-year revenue expected between $10.475 billion and $10.525 billion [7]. Acquisitions - Palo Alto Networks announced the acquisition of Chronosphere for $3.35 billion, which has an ARR of $160 million and is growing rapidly [7]. - The company is also in the process of acquiring CyberArk, indicating a strategy to consolidate in the cybersecurity space [8]. Valuation - The stock trades at a forward price-to-sales ratio of 12 times fiscal 2026 estimates, which is considered high given the current revenue growth [9].