Palo Alto Networks Soars 13% YTD: Time to Buy, Hold or Sell the Stock?

Palo Alto Networks, Inc. PANW 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, CyberArk Software Ltd. CYBR and Fortinet Inc. FTNT 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 PerformanceImage Source: Zacks Investment ResearchDespite 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 PANWDespite 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 AttractiveFor 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 RatioImage Source: Zacks Investment ResearchConclusion: Hold PANW Stock for NowPalo 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.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Fortinet, Inc. (FTNT): Free Stock Analysis Report Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report CyberArk Software Ltd. (CYBR): Free Stock Analysis Report CrowdStrike (CRWD): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks