PANW Trades at Premium Valuation: Buy, Sell or Hold the Stock?

Palo Alto Networks, Inc. PANW is currently trading at a high price-to-earnings (P/E) multiple, above the Zacks Security industry. Palo Alto Networks’ forward 12-month P/E ratio sits at 74.26X, higher than the Zacks Security industry’s forward 12-month P/E ratio of 73.32X. The Zacks Value Score of F also suggests that PANW stock is overvalued.

The stock trades at a premium valuation to other industry peers, including Check Point Software CHKP, Fortinet FTNT and Okta Inc. OKTA. At present, Checkpoint Software, Fortinet and Okta have P/E multiples of 19.67X, 30.76X and 23.66X, respectively.

PANW Forward 12-Month P/E Ratio

Palo Alto Networks’ elevated valuation raises concerns about whether the stock can justify such lofty multiples. Considering the premium valuation, investors must be wondering whether they should buy, hold or sell the stock, especially amid near-term challenges.

PANW’s Recent Acquisitions Spark Investor Concerns

In January, Palo Alto Networks completed the acquisition of Chronosphere. The acquisition was announced in mid-November, when Palo Alto Networks agreed to buy Chronosphere at a consideration price of $3.35 billion. This reflects a hefty premium price, as the consideration price is around 21 times Chronosphere’s annual recurring revenue (ARR) of around $160 million.

Palo Alto Networks is already in the midst of a much bigger deal, which involves buying CyberArk Software for about $25 billion, which is expected to close by the second half of fiscal 2026. Seeing both deals together might have sparked concerns among the investors about whether the company is using its money wisely or if it can manage two large acquisitions at the same time.

On top of that, Palo Alto Networks is experiencing a slowdown in its revenues and Next-Generation Security (NGS) ARR, which might have caused concerns among the investors regarding the company’s future prospects.

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.

This deceleration is expected to continue into fiscal 2026, with the company forecasting full-year revenue growth in the range of 14-15%. In the recently reported financial results for the first quarter of fiscal 2026, revenues grew 16% year over year. The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates revenue growth to remain in the low-to-mid-teen percentage range.

Another concern is the slowing growth of NGS ARR, a key metric for Palo Alto Networks' long-term financial health. The company has reported six consecutive quarters of decelerating NGS ARR growth. For fiscal 2026, Palo Alto Networks expects NGS ARR in the range of $7.00-$7.10 billion, suggesting 26-27% growth. This indicates a slowdown from 32% growth in fiscal 2025 and 45%+ in fiscal 2024. While this is still impressive, the decelerating momentum has disappointed investors, considering the rising demand for cloud security and AI-powered solutions.

The above-mentioned factors seem to have weighed on investors’ sentiments as reflected in a decline in PANW’s share price over the past three months. PANW stock has declined 21.1% over the past three months, underperforming the Zacks Security industry’s decline of 19.2%.

The stock has underperformed its industry peers, as well, including Fortinet, Okta and Check Point Software. Shares of Fortinet have returned 0.2%, while shares of Okta and Check Point Software have lost 2.7% and 10.22%, respectively.

3-Month Price Return Performance

Key Technical Indicator Signals Bearish Trend for PANW

Palo Alto Networks shares have dipped below their 50-day & 200-day moving averages, a bearish technical signal that indicates the potential for continued downward pressure in the short term.

PANW 50-Day & 200-Day Simple Moving Averages

Conclusion: Sell PANW Stock Right 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. The company’s recent acquisitions, along with its premium valuation, warrant a cautious approach to the stock.

Currently, Palo Alto Networks carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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