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Palo Alto Networks Trades at Premium Valuation: How to Play the Stock
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Key Takeaways
PANW trades at 11.67X forward sales, above peers like Fortinet, Okta and SentinelOne.
Palo Alto Networks cut FY26 EPS outlook after CyberArk deal and higher integration costs.
PANW shares fell 13.6% in six months and slipped below the 200-day moving average.
Palo Alto Networks, Inc. (PANW - Free Report) is currently trading at a high price-to-sales (P/S) multiple, above the Zacks Security industry. Palo Alto Networks’ forward 12-month P/S ratio sits at 11.67X, higher than the Zacks Security industry’s forward 12-month P/S ratio of 11.06X. 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 SentinelOne (S - Free Report) , Fortinet (FTNT - Free Report) and Okta Inc. (OKTA - Free Report) . At present, SentinelOne, Fortinet and Okta have P/S multiples of 4.30X, 8.39X and 4.22X, respectively.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
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.
Rising Integration Costs Weigh on 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 to Hurt PANW’s Prospects
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 per share is pegged at $3.70 and $3.98, respectively. Estimates for fiscal 2026 have remained unchanged over the past 60 days, while the same for fiscal 2027 have been revised downward by a penny over the past 30 days.
Image Source: Zacks Investment Research
PANW Faces Stiff Competition
Palo Alto Networks faces stiff competition from peers like Fortinet, Okta and SentinelOne, which are also gaining ground through platform expansion and AI innovation.
Fortinet has introduced updates to its Security Operations platform, which include agent-based AI, managed detection and response, and endpoint security, all combined under one Security Fabric system. SentinelOne's FortiSOC is a cloud-based platform that combines FortiAnalyzer, FortiSIEM, FortiSOAR and FortiTIP into one service. Through this platform, the company allows its users to collect and standardize logs, correlate data, automate workflows, manage cases, run behavioral analytics and investigate identity-related threats from one console.
Okta has introduced a new framework called a “secure agentic enterprise” to help companies manage and secure AI agents. Nowadays, most companies have already seen AI-related security issues, but only a small number treat AI agents as independent identities. Because of this, Okta forecasts that companies need new ways to manage identity and access for these agents. To support this, the company is launching Okta for AI Agents, which will help companies find and register AI agents, control their access and remove access quickly if needed.
SentinelOne has launched Wayfinder Frontier AI Services, a new offering focused on identifying and stopping real-world cyberattack paths. The service is built on SentinelOne's Singularity platform and uses data from endpoints, cloud systems and threat intelligence sources. Wayfinder Frontier AI Services combines AI models with its security experts to continuously identify, prioritize and guide fixes across a customer’s systems. The goal is to move beyond listing vulnerabilities and instead focus on what attackers can actually exploit in a live environment.
The above-mentioned factors seem to have weighed on investors’ sentiments as reflected in a decline in PANW’s share price over the past six months. PANW stock has declined 13.6% over the past six months, underperforming its industry peers, including Fortinet, Okta and SentinelOne. Shares of Fortinet have returned 9.7%, while shares of Okta and SentinelOne have lost 8.8% and 6.2%, respectively.
6-Month Price Return Performance
Image Source: Zacks Investment Research
Key Technical Indicator Signals Bearish Trend for PANW
Palo Alto Networks shares have dipped below their 200-day moving averages, a bearish technical signal that indicates the potential for continued downward pressure in the short term.
PANW 200-Day Simple Moving Average
Image Source: Zacks Investment Research
Conclusion: Sell PANW Stock Right Now
Palo Alto Networks faces near-term risks from rising integration costs due to large acquisitions, share dilution impact is meaningful, and downward revision of EPS guidance. Further, intensifying competition in the cybersecurity market from rivals such as Fortinet, Okta and SentinelOne is a key concern. These could hurt PANW’s prospects in the near term.
The above-mentioned factors, along with the company’s premium valuation, warrant a cautious approach to the stock, which makes this Zacks Rank #4 (Sell) stock less attractive in the near term.
View the Zacks #1 Rank List
Image: Bigstock
Palo Alto Networks Trades at Premium Valuation: How to Play the Stock
Key Takeaways
Palo Alto Networks, Inc. (PANW - Free Report) is currently trading at a high price-to-sales (P/S) multiple, above the Zacks Security industry. Palo Alto Networks’ forward 12-month P/S ratio sits at 11.67X, higher than the Zacks Security industry’s forward 12-month P/S ratio of 11.06X. 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 SentinelOne (S - Free Report) , Fortinet (FTNT - Free Report) and Okta Inc. (OKTA - Free Report) . At present, SentinelOne, Fortinet and Okta have P/S multiples of 4.30X, 8.39X and 4.22X, respectively.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
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.
Rising Integration Costs Weigh on 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 to Hurt PANW’s Prospects
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 per share is pegged at $3.70 and $3.98, respectively. Estimates for fiscal 2026 have remained unchanged over the past 60 days, while the same for fiscal 2027 have been revised downward by a penny over the past 30 days.
Image Source: Zacks Investment Research
PANW Faces Stiff Competition
Palo Alto Networks faces stiff competition from peers like Fortinet, Okta and SentinelOne, which are also gaining ground through platform expansion and AI innovation.
Fortinet has introduced updates to its Security Operations platform, which include agent-based AI, managed detection and response, and endpoint security, all combined under one Security Fabric system. SentinelOne's FortiSOC is a cloud-based platform that combines FortiAnalyzer, FortiSIEM, FortiSOAR and FortiTIP into one service. Through this platform, the company allows its users to collect and standardize logs, correlate data, automate workflows, manage cases, run behavioral analytics and investigate identity-related threats from one console.
Okta has introduced a new framework called a “secure agentic enterprise” to help companies manage and secure AI agents. Nowadays, most companies have already seen AI-related security issues, but only a small number treat AI agents as independent identities. Because of this, Okta forecasts that companies need new ways to manage identity and access for these agents. To support this, the company is launching Okta for AI Agents, which will help companies find and register AI agents, control their access and remove access quickly if needed.
SentinelOne has launched Wayfinder Frontier AI Services, a new offering focused on identifying and stopping real-world cyberattack paths. The service is built on SentinelOne's Singularity platform and uses data from endpoints, cloud systems and threat intelligence sources. Wayfinder Frontier AI Services combines AI models with its security experts to continuously identify, prioritize and guide fixes across a customer’s systems. The goal is to move beyond listing vulnerabilities and instead focus on what attackers can actually exploit in a live environment.
The above-mentioned factors seem to have weighed on investors’ sentiments as reflected in a decline in PANW’s share price over the past six months. PANW stock has declined 13.6% over the past six months, underperforming its industry peers, including Fortinet, Okta and SentinelOne. Shares of Fortinet have returned 9.7%, while shares of Okta and SentinelOne have lost 8.8% and 6.2%, respectively.
6-Month Price Return Performance
Image Source: Zacks Investment Research
Key Technical Indicator Signals Bearish Trend for PANW
Palo Alto Networks shares have dipped below their 200-day moving averages, a bearish technical signal that indicates the potential for continued downward pressure in the short term.
PANW 200-Day Simple Moving Average
Image Source: Zacks Investment Research
Conclusion: Sell PANW Stock Right Now
Palo Alto Networks faces near-term risks from rising integration costs due to large acquisitions, share dilution impact is meaningful, and downward revision of EPS guidance. Further, intensifying competition in the cybersecurity market from rivals such as Fortinet, Okta and SentinelOne is a key concern. These could hurt PANW’s prospects in the near term.
The above-mentioned factors, along with the company’s premium valuation, warrant a cautious approach to the stock, which makes this Zacks Rank #4 (Sell) stock less attractive in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.