Palo Alto Networks, Inc. PANW is currently trading at a discounted valuation, making it an intriguing stock for investors to consider when deciding whether to buy, hold or sell. With a forward 12-month price-to-earnings (P/E) ratio of 53.71, PANW is significantly cheaper than the Zacks Security industry average of 99.59.

It also trades at a lower valuation compared to rivals such as CrowdStrike CRWD, CyberArk CYBR and Zscaler ZS, which have P/E multiples of 103.58, 89.93 and 60.95, respectively. Palo Alto Networks’ forward 12-month price-to-sales (P/S) ratio of 12.4 is also below the industry average of 13.12, further reflecting its reasonable valuation.

PANW Forward 12-Month P/S Ratio

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Despite near-term challenges, Palo Alto Networks remains a strong long-term investment, supported by its leadership in cybersecurity, expanding artificial intelligence (AI)-driven security solutions and its successful transition to a platform-based business model. While the company faces slowing sales growth, its recurring revenue streams, innovation pipeline and discounted valuation make it a compelling hold for now.

PANW’s Strong Long-Term Growth Drivers

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.

Key Technical Indicator Signals Bullish Trend for PANW

Palo Alto Networks crossed above its 50-day moving average on March 19, signaling renewed bullish momentum. This technical breakout suggests improving investor sentiment and potential upside, especially after recent weakness. It may indicate growing confidence in PANW’s long-term growth prospects despite near-term sales deceleration, making it an attractive hold.

PANW 50-Day SMA Signals Bullish Trend

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PANW’s Slowing Sales Growth Presents Near-Term Risks

Despite its strong fundamentals, Palo Alto Networks’ slowing sales growth has raised concerns about its near-term outlook. 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 billion-$9.19 billion.

This trend has already been manifested in the first-quarter and second-quarter revenue growth, which has hovered around 14%, reinforcing the view that PANW’s rapid expansion phase is cooling off.

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Another key concern is the slowing growth of Next-Generation Security (“NGS”) annual recurring revenue (ARR), a critical 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 indicating a further slowdown to 31-32% growth compared to the 45%+ growth in previous years. While this remains impressive, the decelerating momentum has disappointed investors, considering the rising demand for cloud security and AI-powered solutions.

Image Source: Palo Alto Networks, Inc.

Conclusion: Hold PANW Stock for Now

While slowing revenue growth is a near-term headwind, Palo Alto Networks’ discounted valuation offers some downside protection. This discounted pricing makes PANW an attractive long-term hold, particularly for investors seeking exposure to cybersecurity growth at a fair price. The company’s platform-based model and recurring revenue streams should provide stability and gradual growth, even amid a broader market slowdown.

Palo Alto Networks carries a Zacks Rank #3 (Hold) at present. 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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