Palo Alto Networks, Inc. PANW shares have lost 11.4% in the past month, underperforming the Zacks Security industry’s decline of 9.2% in the same time frame. Palo Alto Networks has also underperformed its industry peers and competitors, including CyberArk CYBR, CrowdStrike CRWD and Zscaler ZS.
Palo Alto Networks’ recent decline stems from a broader market weakness. A widespread sell-off in tech stocks, triggered by fears of rising trade tensions and slowing economic growth concerns, has put pressure on the entire sector, including PANW.
The recent drop in this cybersecurity leader’s share price sparks an important debate: Should investors hold their positions or cut their losses?
One Month Price Performance Chart
Zacks Investment Research
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Slowing Sales Growth: A Key Concern for PANW
Palo Alto Networks is experiencing a slowdown in its sales growth. In fiscal 2024, the company posted 16% year-over-year revenue growth, down sharply from 25% in fiscal 2023. This deceleration is expected to persist in fiscal 2025, with PANW projecting full-year revenue growth of 14%, landing in the range of $9.14-$9.19 billion.
This trend has already been reflected in the fiscal first-quarter and second-quarter 2025 revenue growth, which has lingered around 14%, reinforcing the view that Palo Alto Networks’ rapid expansion phase is cooling off. Furthermore, PANW’s next-generation security annual recurring revenue growth has been projected at 31-32% compared to more than 45% in the previous years. The decelerating momentum has disappointed investors.
Furthermore, as Palo Alto Networks operates in a highly competitive cybersecurity space, the company has to invest heavily in sales and marketing (S&M) and research and development (R&D), squeezing near-term profitability. Over the past few years, Palo Alto’s S&M and R&D expenses have grown significantly.
Although Palo Alto Networks’ latest SaaS offerings are experiencing rapid adoption, they haven’t achieved scale yet, resulting in pressured gross margin. PANW’s fiscal earnings have been revised downward by a penny in the past seven days to $3.22 per share. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
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PANW Faces Fierce Competition in Cybersecurity Space
Adding to its financial woes, the fierce competition in the cybersecurity space poses a serious threat to Palo Alto Networks’ growth prospects. Players like CrowdStrike, CyberArk and Zscaler already compete with Palo Alto on multiple fronts.
CrowdStrike’s Falcon Extended Detection and Response (XDR) competes with Palo Alto Networks’ Cortex XDR. Although they differ in operations, such as Falcon is cloud native while Cortex unifies endpoint, network and cloud, both serve similar customer needs.
In the space of privileged access management, CyberArk leads the market, while Palo Alto Networks covers the space partly with its identity-based access control, Prisma Access. Zscaler competes with its Secure Web Gateway, Secure Access Service Edge and zero trust network architecture to counter PANW’s Prisma Cloud and Access offerings.
Since the cybersecurity market is highly consolidated, with each player having massive financial resources, the competition remains cutthroat. However, for the PANW investors, not everything is gloom and doom.
Positive Industry Trends Favor PANW Prospects
Despite the challenges, 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 $193.73 billion in 2024 to $562.72 billion by 2032, 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.
The company’s continued innovation in AI, automation and cloud security positions it ahead of its competitors. Its strategic partnership with NVIDIA to develop AI-powered private 5G security solutions highlights its focus on next-generation technologies. This collaboration strengthens PANW’s capabilities in protecting data and networks in 5G environments, a rapidly growing market segment.
Furthermore, Palo Alto Networks’ transition to a platform-based model has been a game-changer. By bundling multiple security products into a comprehensive cybersecurity platform, the company generates recurring revenue streams, boosting financial stability and customer stickiness. This platformization strategy makes PANW a go-to security provider for enterprises seeking end-to-end protection.
Valuation: PANW Stock Trades at Discount
Palo Alto is currently trading at a low price-to-sales (P/S) multiple, far below the Zacks Security industry. Palo Alto’s forward 12-month P/S ratio sits at 10.71X, lower than the Zacks Security industry’s forward 12-month P/S ratio of 12.03X.
Palo Alto Networks’ Valuation Chart
Zacks Investment Research
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Conclusion: Hold Palo Alto Stock for Now
Although Palo Alto Networks is dealing with multiple financial and competitive headwinds, the company has enormous resources to drive innovation and be at the forefront of the Cybersecurity industry in the future. A robust demand environment and discounted valuation make it a stock worth holding at present.
PANW carries a Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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