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Palo Alto Networks Plunges 12% in 3 Months: Hold or Fold the Stock?
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Key Takeaways
Palo Alto Networks fell 11.9% in three months as integration costs and share dilution weighed on outlook.
PANW cut FY2026 EPS guidance after higher acquisition costs and issuing 112M shares in the CyberArk deal.
SASE ARR rose 40% YoY, supported by Prisma Browser growth and large enterprise transformation wins.
Palo Alto Networks (PANW - Free Report) stock has been in a downward trajectory over the past three months. Shares of the company have plunged 11.9% over the past three months, underperforming the Zacks Computer and Technology sector’s decline of 8.3%.
Palo Alto Networks has also underperformed industry peers, including Fortinet (FTNT - Free Report) and Okta Inc. (OKTA - Free Report) , while marginally outperforming CrowdStrike (CRWD - Free Report) . In the past three months, shares of Fortinet have jumped 4.1%, while Okta and CrowdStrike shares have lost 9.8% and 13.9%, respectively.
3-month Price Return Performance
Image Source: Zacks Investment Research
The underperformance of Palo Alto Networks’ shares raises the question: Should investors buy, sell or hold PANW stock?
Rising Integration Costs Hurt PANW’s Prospects
Palo Alto Networks' near-term prospects are expected to be weighed down due to integration and acquisition-related costs. PANW recently completed two major acquisitions, which include its $25 billion CyberArk deal and $3.35 billion Chronosphere acquisition. As a result, PANW is incurring high integration-related costs, including onboarding employees, aligning go-to-market teams, and integrating systems and operations.
Acquisition-related costs in the second quarter of fiscal 2026 amounted to $24 million, a whopping increase from $5 million incurred in the prior quarter. These costs are expected to hurt the company's profitability before the benefits of synergies from acquisitions are fully realized.
Equity dilution effect is expected to significantly hurt PANW’s bottom line. In the second quarter of fiscal 2026, PANW issued 112 million shares as part of the CyberArk deal. This is expected to result in a significant equity dilution effect, hurting the company’s bottom-line results. Management expects fiscal 2026 earnings per share (EPS) to be in the range of $3.65-$3.70, down from its prior guidance of $3.80-$3.90 per share.
The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2026 and 2027 earnings is pegged at $3.73 and $4.07 per share, respectively. Estimates for fiscal 2026 have been revised downward by 12 cents over the past 60 days, while the same for fiscal 2027 have been revised downward by 2 cents over the past 30 days.
Image Source: Zacks Investment Research
PANW’s Premium Valuation Warrants a Cautious Approach
Palo Alto Networks is currently trading at a higher price-to-sales (P/S) multiple compared to the Zacks Security industry. PANW’s forward 12-month P/S ratio sits at 10.36X, slightly higher than the industry’s forward 12-month P/S ratio of 10.03X. The Zacks Value Score of F also suggests that PANW stock is overvalued.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
Palo Alto Networks stock trades at a higher P/S multiple compared with Okta and Fortinet, while trading at a lower P/S multiple compared with CrowdStrike. At present, Fortinet, Okta and CrowdStrike have P/S multiples of 4.34X, 7.74X and 16.33X, respectively.
Despite the above-mentioned challenges, it’s not all doom and gloom for Palo Alto Networks.
Positive Industry Tailwinds Boost PANW’s Prospects
Palo Alto Networks is well-positioned to capitalize on the growing demand for advanced cybersecurity solutions. According to Fortune Business Insights, the global cybersecurity market is projected to expand from $248.28 billion in 2026 to $699.39 billion by 2034, representing a massive addressable market. As cyber threats become more sophisticated, enterprises are increasingly prioritizing multi-layered security platforms, which directly contribute to PANW’s strengths.
Palo Alto Networks’ wide range of innovative products, strong customer base and growing opportunities in areas like Zero Trust, Secure Access Service Edge (SASE) and private 5G security continue to support its long-term growth potential. For example, in the second quarter of fiscal 2026, SASE was Palo Alto Networks’ fastest-growing segment, with SASE Annual recurring revenues (ARR) increasing 40% year over year. Here, demand is being driven by enterprises that want a more complete and integrated security solution across users, networks and cloud environments.
The Prisma browser is a key driver behind PANW's SASE growth. PANW ended the second quarter with more than 1,500 Prisma Browser customers and over nine million browser licenses sold to date. In the second quarter alone, the company added around two million new licenses. Prisma browser remains an important control point where users access applications and data. As more work is done through browsers, securing this layer has become necessary for enterprises.
SASE growth is also being supported by large enterprise wins. A global automotive company signed a security transformation deal worth more than $50 million. The deal included $30 million for SASE and $20 million for XSIAM to run its global security operations center. A global technology supplier also signed a transformation deal worth more than $40 million that included XSIAM and expanded SASE adoption.
PANW’s secure browser is designed to act as a native security layer, which allows real-time control and better visibility. This is helping the company win and expand SASE deployments. The above-mentioned factors should continue to support PANW’s long-term growth as demand for cybersecurity solutions across enterprises continues to rise. The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates revenue growth of around 21.5% and 19%, respectively.
Image Source: Zacks Investment Research
Conclusion: Hold 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. Growth in areas such as SASE, XSIAM and platform-based security offerings remains strong, supported by large enterprise deals and increasing customer adoption, which provides a favorable long-term growth opportunity for the company.
However, Palo Alto Networks faces near-term risks from rising integration costs due to large acquisitions, share dilution is meaningful, and downward revision of EPS guidance for fiscal 2026. These could hurt PANW’s prospects in the near term.
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Palo Alto Networks Plunges 12% in 3 Months: Hold or Fold the Stock?
Key Takeaways
Palo Alto Networks (PANW - Free Report) stock has been in a downward trajectory over the past three months. Shares of the company have plunged 11.9% over the past three months, underperforming the Zacks Computer and Technology sector’s decline of 8.3%.
Palo Alto Networks has also underperformed industry peers, including Fortinet (FTNT - Free Report) and Okta Inc. (OKTA - Free Report) , while marginally outperforming CrowdStrike (CRWD - Free Report) . In the past three months, shares of Fortinet have jumped 4.1%, while Okta and CrowdStrike shares have lost 9.8% and 13.9%, respectively.
3-month Price Return Performance
Image Source: Zacks Investment Research
The underperformance of Palo Alto Networks’ shares raises the question: Should investors buy, sell or hold PANW stock?
Rising Integration Costs Hurt PANW’s Prospects
Palo Alto Networks' near-term prospects are expected to be weighed down due to integration and acquisition-related costs. PANW recently completed two major acquisitions, which include its $25 billion CyberArk deal and $3.35 billion Chronosphere acquisition. As a result, PANW is incurring high integration-related costs, including onboarding employees, aligning go-to-market teams, and integrating systems and operations.
Acquisition-related costs in the second quarter of fiscal 2026 amounted to $24 million, a whopping increase from $5 million incurred in the prior quarter. These costs are expected to hurt the company's profitability before the benefits of synergies from acquisitions are fully realized.
Equity dilution effect is expected to significantly hurt PANW’s bottom line. In the second quarter of fiscal 2026, PANW issued 112 million shares as part of the CyberArk deal. This is expected to result in a significant equity dilution effect, hurting the company’s bottom-line results. Management expects fiscal 2026 earnings per share (EPS) to be in the range of $3.65-$3.70, down from its prior guidance of $3.80-$3.90 per share.
The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2026 and 2027 earnings is pegged at $3.73 and $4.07 per share, respectively. Estimates for fiscal 2026 have been revised downward by 12 cents over the past 60 days, while the same for fiscal 2027 have been revised downward by 2 cents over the past 30 days.
Image Source: Zacks Investment Research
PANW’s Premium Valuation Warrants a Cautious Approach
Palo Alto Networks is currently trading at a higher price-to-sales (P/S) multiple compared to the Zacks Security industry. PANW’s forward 12-month P/S ratio sits at 10.36X, slightly higher than the industry’s forward 12-month P/S ratio of 10.03X. The Zacks Value Score of F also suggests that PANW stock is overvalued.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
Palo Alto Networks stock trades at a higher P/S multiple compared with Okta and Fortinet, while trading at a lower P/S multiple compared with CrowdStrike. At present, Fortinet, Okta and CrowdStrike have P/S multiples of 4.34X, 7.74X and 16.33X, respectively.
Despite the above-mentioned challenges, it’s not all doom and gloom for Palo Alto Networks.
Positive Industry Tailwinds Boost PANW’s Prospects
Palo Alto Networks is well-positioned to capitalize on the growing demand for advanced cybersecurity solutions. According to Fortune Business Insights, the global cybersecurity market is projected to expand from $248.28 billion in 2026 to $699.39 billion by 2034, representing a massive addressable market. As cyber threats become more sophisticated, enterprises are increasingly prioritizing multi-layered security platforms, which directly contribute to PANW’s strengths.
Palo Alto Networks’ wide range of innovative products, strong customer base and growing opportunities in areas like Zero Trust, Secure Access Service Edge (SASE) and private 5G security continue to support its long-term growth potential. For example, in the second quarter of fiscal 2026, SASE was Palo Alto Networks’ fastest-growing segment, with SASE Annual recurring revenues (ARR) increasing 40% year over year. Here, demand is being driven by enterprises that want a more complete and integrated security solution across users, networks and cloud environments.
The Prisma browser is a key driver behind PANW's SASE growth. PANW ended the second quarter with more than 1,500 Prisma Browser customers and over nine million browser licenses sold to date. In the second quarter alone, the company added around two million new licenses. Prisma browser remains an important control point where users access applications and data. As more work is done through browsers, securing this layer has become necessary for enterprises.
SASE growth is also being supported by large enterprise wins. A global automotive company signed a security transformation deal worth more than $50 million. The deal included $30 million for SASE and $20 million for XSIAM to run its global security operations center. A global technology supplier also signed a transformation deal worth more than $40 million that included XSIAM and expanded SASE adoption.
PANW’s secure browser is designed to act as a native security layer, which allows real-time control and better visibility. This is helping the company win and expand SASE deployments. The above-mentioned factors should continue to support PANW’s long-term growth as demand for cybersecurity solutions across enterprises continues to rise. The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates revenue growth of around 21.5% and 19%, respectively.
Image Source: Zacks Investment Research
Conclusion: Hold 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. Growth in areas such as SASE, XSIAM and platform-based security offerings remains strong, supported by large enterprise deals and increasing customer adoption, which provides a favorable long-term growth opportunity for the company.
However, Palo Alto Networks faces near-term risks from rising integration costs due to large acquisitions, share dilution is meaningful, and downward revision of EPS guidance for fiscal 2026. These could hurt PANW’s prospects in the near term.
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.