Key takeaways
View moreWhile Palo Alto Networks demonstrates strong market leadership and impressive growth metrics, particularly in NGS ARR and AI-powered solutions, the current valuation appears slightly stretched given the margin pressure and liquidity concerns. The company's high EV/Sales multiple of 14.61x, combined with declining net profit margins and below-industry liquidity ratios, suggests the market may be pricing in overly optimistic growth expectations despite the company's strong competitive position and growth initiatives.
- Palo Alto Networks demonstrates strong revenue growth, with Q3 2025 revenue increasing by 15% year-over-year, driven by both product and services.
- The company's Next-Generation Security (NGS) ARR reached $5.09 billion, up 34% year-over-year, highlighting the success of its strategic focus on subscription-based services.
- Palo Alto Networks' current ratio of 0.85 is below the industry average of 2.88, indicating potential short-term liquidity challenges that require monitoring.
- The company's platformization strategy is gaining traction, with over 90 net new platformization deals in Q3, leading to larger deals and improved security outcomes for customers.
- Palo Alto Networks is prioritizing AI runtime security and has acquired Protect.ai to bolster its AI security capabilities, positioning itself to capitalize on the increasing adoption of AI.
- The ongoing patent infringement lawsuit with Centripetal Networks poses a legal risk, with a $113.6 million judgment issued in October 2024 (currently on appeal), which could impact the company's financial performance.
- Palo Alto Networks expects NGS ARR to be in the range of $5.52 billion to $5.57 billion for fiscal year 2025, representing 31% to 32% growth, demonstrating confidence in its future growth prospects.
Evaluation summary
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Company Overview:
- Palo Alto Networks, Inc. (PANW) is a global cybersecurity leader providing network security solutions to enterprises, service providers, and government entities. Its core offerings include network security, cloud security, security operations, and threat intelligence/advisory services.
- The company's revenue is primarily driven by subscription and support services, which account for over 80% of total revenue, as noted in the SEC filings. These services are growing faster than product revenue, indicating a shift towards recurring revenue streams.
- For comparative analysis, the company's performance is benchmarked against the Technology Select Sector SPDR Fund (XLK) and industry peers Zscaler, Inc. (ZS), and CrowdStrike Holdings, Inc. (CRWD).
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Financial Performance:
- Palo Alto Networks has demonstrated consistent revenue growth. In the most recent quarter (2025-04-30), revenue reached $2.289 billion, compared to $2.1895 billion in the quarter ended 2024-07-31. This represents a growth of approximately 4.5%.
- The company's gross profit margin remains strong, at 72.94% as of 2025-04-30, slightly lower than the 73.80% reported for 2024-07-31. Net profit margin was 11.45% for the quarter ended 2025-04-30, a decrease from 16.34% in 2024-07-31.
- Return on Average Assets (ROA) was 6.20% as of 2025-04-30, significantly lower than the industry average of -16.45%. Return on Average Total Equity (ROE) was 21.16%, also lower than the industry average of -65.27%. Return on Average Total Capital was 14.81%, slightly below the industry average of -15.71%.
- The company's EBITDA margin was 19.37% as of 2025-04-30, which is significantly higher than the industry average of -5474.48%.
- According to the earnings call, Q3 2025 revenue grew 15% year-over-year, with double-digit growth across all geographies.
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Operational Efficiency:
- Total assets increased from $19.99 billion as of 2024-07-31 to $22.003 billion as of 2025-04-30, indicating business expansion. Total liabilities also increased from $14.821 billion to $14.772 billion during the same period.
- Working capital is negative, with a value of -$1.194 billion as of 2025-04-30. This indicates potential short-term liquidity challenges.
- Net operating cash flow was $628.7 million for the quarter ended 2025-04-30, compared to $512.7 million for the quarter ended 2024-07-31.
- Free cash flow to equity was $560.4 million as of 2025-04-30, compared to $465.3 million as of 2024-07-31, demonstrating an increase in cash generation. The free cash flow margin was 0.24 as of 2025-04-30.
- Total capital expenditure was $68.3 million as of 2025-04-30, compared to $47.4 million as of 2024-07-31. Depreciation, depletion, and amortization were $223.3 million as of 2025-04-30.
- The company does not pay cash dividends. Change in capital stock was $203.3 million as of 2025-04-30.
- The current ratio was 0.85 as of 2025-04-30, below the industry average of 2.88, indicating potential liquidity issues. The quick ratio was also 0.85.
- The total debt to total equity ratio was 10.08% as of 2025-04-30, significantly lower than the industry average of 84.94%, indicating a conservative capital structure.
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Growth Opportunities:
- Palo Alto Networks is focused on expanding its market presence through its platformization strategy, which is gaining traction, leading to larger deals and improved security outcomes for customers.
- The company is investing in R&D to develop AI-powered solutions, such as Prisma AIRS, and has acquired Protect.ai to bolster its AI security capabilities. R&D spending is reflected in the increase in operating expenses.
- The company is experiencing growth in its SASE (Secure Access Service Edge) offering, with SASE ARR growing 36% year-over-year, more than twice as fast as the overall market.
- According to the earnings call, the company is targeting $15 billion in ARR by FY '30.
- The company's strategic focus areas include NGS ARR growth, AI-driven transformation, and platformization strategy.
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Recent Developments and Market Sentiment:
- The earnings call highlighted that XSIAM is a key growth driver, with rapid growth and high ARR per customer, indicating its potential to significantly impact Palo Alto Networks' future performance.
- The company is prioritizing AI runtime security to address the evolving threat landscape and ensure the security of AI models and applications.
- The acquisition of certain IBM QRadar assets in August 2024 and the expanded partnership with IBM in May 2024 demonstrate the company's strategic focus on expanding its product portfolio and capabilities.
- Management expressed confidence in the company's long-term growth prospects, particularly driven by NGS ARR and the increasing adoption of AI-powered solutions.
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Risks and Threats:
- The company faces intense competition in the cybersecurity industry, as highlighted in the SEC filings.
- Macroeconomic conditions, geopolitical risks, and supply chain disruptions could impact the company's financial performance.
- The ongoing patent infringement lawsuit with Centripetal Networks poses a legal risk, with a $113.6 million judgment issued in October 2024 (currently on appeal).
- The company's low current ratio is a potential area of concern that needs monitoring.
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Valuation Analysis:
- The enterprise value to EBITDA was 68.15 as of 2025-04-30, lower than the industry average of 115.65.
- The enterprise value to sales was 14.61 as of 2025-04-30, higher than the industry average of -19.81.
- Potential catalysts include the successful integration of acquisitions, continued growth in NGS ARR, and increased adoption of AI-powered solutions.
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Price Performance:
- The stock price has shown volatility in recent months. From May 1, 2025, to June 27, 2025, the stock price increased from $186.27 to $200.57.
- Palo Alto Networks (PANW) has shown mixed performance compared to the Technology Select Sector SPDR Fund (XLK). While PANW has outperformed XLK over longer periods (2 and 3 years), it has underperformed in the most recent 1-week, 1-month, and 3-month periods.
- PANW has generally underperformed Zscaler (ZS) and CrowdStrike (CRWD) over most periods.
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Future Outlook:
- For fiscal year 2025, Palo Alto Networks expects NGS ARR to be in the range of $5.52 billion to $5.57 billion (31% to 32% growth), RPO of $15.2 billion to $15.3 billion (19% to 20% growth), and revenue of $9.17 billion to $9.19 billion (14% growth).
- Operating margins are projected to be between 28.2% and 28.5%, with diluted non-GAAP EPS in the range of $3.26 to $3.28 per share (15% growth).
- Adjusted free cash flow margin is expected to be between 37.5% and 38%.
- The company's future performance is expected to be influenced by its ability to execute its platformization strategy, capitalize on the increasing adoption of AI, and manage its costs effectively.
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Summary:
- Palo Alto Networks is a leading cybersecurity provider with strong revenue growth and profitability.
- The company's strengths include its focus on NGS ARR, AI-powered solutions, and platformization strategy. Weaknesses include its low current ratio and potential short-term liquidity challenges.
- Opportunities include expanding its market presence through strategic acquisitions and partnerships, and capitalizing on the increasing demand for cloud-based security solutions. Threats include intense competition, regulatory challenges, and legal liabilities.
- The company's financial health is generally strong, with a conservative capital structure and robust cash flow generation.
- Critical factors for future performance include the company's ability to manage its working capital effectively, execute its growth strategy, and mitigate its legal risks.
- Palo Alto Networks presents a growth-oriented investment profile, balanced against identified risks. The company's position relative to analyzed industry trends and recent developments suggests a positive outlook, but investors should monitor its liquidity and legal challenges.
Price history
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Fundamentals
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Insights
- Palo Alto Networks exhibits strong revenue growth and profitability, driven by increasing demand for its cybersecurity solutions and effective cost management.
- The company's liquidity position is a potential area of concern, as indicated by its low current and quick ratios.
- Palo Alto Networks has a conservative capital structure and strong solvency, providing financial flexibility for future investments and acquisitions.
- The company's focus on NGS ARR, AI-powered solutions, and platformization strategy positions it well for future growth.
- Investors should monitor the company's liquidity position, working capital management, and legal liabilities.
Analysis
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Revenue - Palo Alto Networks has demonstrated strong and consistent revenue growth, driven by increasing demand for its cybersecurity solutions. - The company's focus on NGS ARR and AI-powered solutions is a key driver of revenue growth. - Revenue growth has been decelerating, but remains robust.
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Profitability
- Palo Alto Networks exhibits strong profitability, with gross profit margin, net profit margin, and EBITDA margin all significantly higher than the industry average.
- The company is effectively managing its costs, leading to improved gross margins and operating leverage.
- Profitability margins have been decreasing, but remain healthy.
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Liquidity
- Palo Alto Networks' current and quick ratios are below 1 and lower than the industry average, indicating potential short-term liquidity challenges.
- The company needs to monitor its working capital and collection efficiency to ensure adequate liquidity.
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Solvency
- Palo Alto Networks has a conservative capital structure, with a low debt-to-equity ratio and a strong capacity to service its debt.
- The company's strong solvency position provides financial flexibility for future investments and acquisitions.
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Operational Efficiency
- Palo Alto Networks is efficiently utilizing its assets to generate profit, as indicated by its high return on average assets.
- The company's enterprise value to sales is higher than the industry average, suggesting that investors have high expectations for future growth.
- The company's enterprise value to EBITDA is lower than the industry average, suggesting that the company may be undervalued relative to its earnings potential.
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Cash Flow Analysis - Palo Alto Networks generates positive operating cash flow, supporting its liquidity position. - The company's consistent FCF generation enhances its long-term solvency. - Capital expenditures are aligned with the company's growth strategy.
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Risk Factors
- The company's low current ratio is a potential area of concern that needs monitoring.
- The company faces intense competition, complex regulatory environments, and supply chain challenges, as highlighted in the SEC filings.
- Legal liabilities, such as the ongoing patent infringement lawsuit with Centripetal Networks, pose potential headwinds.
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Future Outlook
- Palo Alto Networks is well-positioned for future growth, driven by its focus on NGS ARR, AI-powered solutions, and platformization strategy.
- The company's strong financial position provides financial flexibility for future investments and acquisitions.
- Investors should monitor the company's liquidity position and ability to manage its working capital effectively.
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Financial statements
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Public filings
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- Palo Alto Networks is a leading cybersecurity provider focused on delivering comprehensive network, cloud, and security operations solutions to enterprise and government customers.
- The company is benefiting from strong demand for its subscription and cloud-based security offerings as organizations continue to adopt cloud computing, remote work models, and advanced security technologies like AI/ML.
- However, Palo Alto Networks faces intense competition, complex regulatory environments, supply chain challenges, and other operational risks that could impact its financial performance and growth trajectory.
- The company's recent acquisitions and partnerships demonstrate its strategic focus on expanding its product portfolio and capabilities to stay ahead of evolving cybersecurity threats and customer needs.
- Palo Alto Networks' financial position remains strong, with healthy revenue growth, robust cash flow, and disciplined capital allocation, though rising costs and legal liabilities pose potential headwinds.
- Overall, Palo Alto Networks appears well-positioned as a leading player in the dynamic and fast-paced cybersecurity market, but will need to effectively navigate various operational, competitive, and regulatory challenges to sustain its growth and profitability.
Core Business and Operations:
- Palo Alto Networks is a leading cybersecurity provider focused on delivering comprehensive network, cloud, and security operations solutions to a diverse set of enterprise and government customers
- Key products and services include network security, cloud security, security operations, and threat intelligence/advisory services
- Customers span a broad range of industries including education, energy, financial services, government, healthcare, and telecommunications
- Major competitors include large tech companies, independent security vendors, startups, and public cloud providers
Industry and Market Trends:
- Cybersecurity industry is highly competitive and rapidly evolving, with constant changes in threats, technologies, and customer requirements
- Increasing adoption of cloud computing, AI/ML, and remote/hybrid work models driving demand for comprehensive cloud-based security solutions
- Regulatory environment is complex, with various privacy, data protection, and cybersecurity laws that companies must comply with globally
- Geopolitical tensions, trade disputes, and economic conditions can impact supply chains, customer spending, and overall market dynamics
Recent Events:
- Acquired certain IBM QRadar assets in August 2024 to help accelerate growth of Cortex security operations platform
- Expanded partnership with IBM in May 2024 to deliver AI-powered security outcomes for customers
- Introduced new product and service offerings such as Prisma Access Browser, Cortex Cloud, and enhanced OT Security capabilities
Risk Factors:
- Ability to manage growth and scale operations effectively
- Reliance on channel partners and potential inability to attract/retain new customers
- Exposure to macroeconomic conditions, geopolitical risks, and supply chain disruptions
- Potential for security breaches, product vulnerabilities, and liability claims
- Intellectual property and technology licensing challenges
- Compliance with complex and evolving privacy/data protection regulations
- Tax liabilities and accounting/financial reporting risks
Legal Matters:
- Ongoing patent infringement lawsuit with Centripetal Networks, with a $113.6 million judgment issued in October 2024 (currently on appeal)
- Finjan, Inc. patent infringement lawsuit with trial date set for June 2025 (unable to estimate potential loss)
Management's Discussion and Analysis:
- Experienced strong revenue growth of 14.1% year-over-year in the first half of fiscal 2025
- Subscription and support revenue accounts for over 80% of total revenue and continues to grow faster than product revenue
- Gross margins remain healthy but have seen some pressure from increased cloud hosting and personnel costs
- Operating expenses have increased to support business growth, but the company aims to drive long-term operating leverage
- Strong cash flow from operations, with $2.1 billion generated in the first half of fiscal 2025
- Convertible debt obligations and share repurchase program are key capital allocation priorities
Earnings calls
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Earnings Report 2025Q3 (2025-05-20)
Key takeaways
- XSIAM is a Key Growth Driver: The rapid growth and high ARR per customer for XSIAM indicate its potential to significantly impact Palo Alto Networks' future performance and disrupt the SIEM market.
- AI is Accelerating Cloud Adoption and Security Needs: The urgency among customers to adopt AI is driving cloud adoption and creating new security challenges, which Palo Alto Networks is addressing with its AI-focused solutions like Prisma AIRS and the acquisition of Protect.ai.
- Platformization is a Core Strategy: The company's platformization strategy is gaining traction, leading to larger deals and improved security outcomes for customers, and is crucial for achieving its long-term ARR targets.
- Software Firewalls are Inflecting: The software firewall business is beginning to inflect, driven by the increasing adoption of cloud-based AI solutions, which is shifting revenue from hardware to software.
- AI Runtime Security is Critical: Palo Alto Networks is prioritizing AI runtime security to address the evolving threat landscape and ensure the security of AI models and applications.
Focus of management’s prepared remarks
- NGS ARR Growth: Palo Alto Networks surpassed $5 billion in NGS ARR, growing 34% year-over-year, driven by AI-powered XSIAM, SASE, and software firewalls. The company is targeting $15 billion in ARR by FY '30.
- AI-Driven Transformation: Customers are accelerating technology transformations due to the urgency to adopt AI, requiring modern, cloud-delivered platforms. The company is enabling secure adoption of AI-powered applications.
- Platformization Strategy: The company's platform approach, favoring better security outcomes and lower cost of ownership, is gaining traction, with over 90 net new platformization deals in Q3 and approximately 1,250 total platformizations within the top 5,000 customers.
- XSIAM Momentum: XSIAM is experiencing accelerating growth and is considered a potential game-changer, modernizing and disrupting the traditional SIEM market. The average ARR per XSIAM customer is over $1 million.
- Network Security Leadership: The company continues to lead in network security, gaining share across all three form factors, with software increasingly contributing to the overall mix.
- SASE Growth: SASE ARR grew 36% year-over-year, more than twice as fast as the overall market, with 40% of new SASE customers being net new to Palo Alto Networks.
- Prisma AIRS and Protect.ai Acquisition: The company launched Prisma AIRS to secure AI transformations and announced the intent to acquire Protect.ai to bolster AI security capabilities.
- Financial Highlights: Q3 revenue grew 15% year-over-year, with double-digit growth across all geographies. The company is managing the transition from billing focus to RPO while maintaining adjusted free cash flow margin targets.
Focus of the analyst Q&A
- XSIAM Opportunity:
- Potential to upgrade the QRadar on-premise customer base.
- Size of the ARR opportunity for Palo Alto Networks on the path to $15 billion.
- Product Revenue Growth:
- Details behind the strong product revenue growth.
- Contribution of share shift, pricing increases, and refresh cycles.
- AI Imperative:
- Wider opportunity beyond AIRS in securing new AI infrastructures.
- Pull-through from the Palo Alto portfolio when securing new AI surface areas.
- Confidence in next-generation ARR growth into next year.
- Geopolitical Volatility:
- Impact of geopolitical tensions and tariff discussions on customer conversations and pipeline.
- Stability of the business climate and customer plans.
- AI Product Portfolio Evolution:
- Mix between organic and inorganic growth in the AI product portfolio.
- Strategies to avoid being leapfrogged in AI technology.
- Agentic AI:
- Palo Alto's positioning to help customers think through the agentic world.
- Foundational aspects that support an agentic perspective.
- Enterprise Browser:
- Reasons behind the inflection in Talon's performance.
- Contribution to the platform approach, particularly around the AI opportunity.
- Threat Intelligence:
- Importance of sharing threat intelligence in the AI era.
- Strategies for protecting against bad actors.
- Platformization Customers:
- Percentage of ARR accounted for by platform customers.
- Importance of growth in platform customers relative to reaching the $15 billion ARR target.
Summary
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Financial Performance
Palo Alto Networks reported strong Q3 2025 results, with total revenue of $2.29 billion, a 15% year-over-year increase, hitting the high end of their guided range. Next-Generation Security (NGS) ARR reached $5.09 billion, up 34% year-over-year. The company achieved $0.80 diluted non-GAAP EPS and $0.37 diluted GAAP EPS, marking the 12th consecutive quarter of positive GAAP EPS. Adjusted free cash flow for the quarter was $578 million.
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Revenue Drivers
Revenue growth was driven by both product and services, with product revenue growing 16% and total services revenue growing 15%. Subscription revenue within services increased by 18%, while support revenue rose by 10%. Software firewalls and SASE were significant contributors. The company highlighted the increasing proportion of product revenue from software, approaching 40%. Geographically, all theaters showed double-digit growth, with JAPAC leading at 23%.
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Profit Margins and Cost Management
Total gross margin was 76%. Product gross margin was 78.4%, and services gross margin was 75.4%. The company is benefiting from economies of scale and efficiencies in larger multi-product deals, along with AI-driven efficiency gains. Operating expense as a percentage of revenue decreased by 340 basis points year-over-year, demonstrating leverage in the business model. The company reiterated confidence in achieving adjusted free cash flow margin targets of 37%-plus in fiscal years 2026 and 2027.
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Guidance and Outlook
For fiscal year 2025, Palo Alto Networks expects NGS ARR to be in the range of $5.52 billion to $5.57 billion (31% to 32% growth), RPO of $15.2 billion to $15.3 billion (19% to 20% growth), and revenue of $9.17 billion to $9.19 billion (14% growth). Operating margins are projected to be between 28.2% and 28.5%, with diluted non-GAAP EPS in the range of $3.26 to $3.28 per share (15% growth). Adjusted free cash flow margin is expected to be between 37.5% and 38%. Q4 revenue is guided at $2.49B-$2.51B and EPS at $0.87-$0.89.
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Strategic Initiatives
The company is focused on its platformization strategy, with a growing number of customers adopting multiple platform solutions. XSIAM is a key growth driver, with ARR growing over 200% year-over-year. Palo Alto Networks announced the intent to acquire Protect.ai to bolster its AI security capabilities. The company is also focused on expanding its SASE offering and securing AI transformations for its customers.
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Management Commentary
Management expressed confidence in the company's long-term growth prospects, particularly driven by NGS ARR and the increasing adoption of AI-powered solutions. They emphasized the importance of consolidation in the cybersecurity landscape and the company's ability to deliver superior security outcomes and lower costs of ownership. The CEO highlighted the urgency among customers to adopt AI and the need for modern, cloud-delivered platforms to support AI initiatives.
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Industry and Market Conditions
The company sees a strong desire for consolidation and secure AI implementation in the market. AI is accelerating cloud adoption, driving the need for software firewalls. The increasing volume and complexity of threats, driven by AI-powered attacks, are also driving demand for advanced security solutions. The company believes its platform approach and focus on innovation position it well to capitalize on these trends.
Comparative analysis
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Benchmarks (as of 2025-06-27)
Technology Select Sector SPDR Fund (XLK)
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Performance Comparison:
- Palo Alto Networks (PANW) has shown mixed performance compared to the Technology Select Sector SPDR Fund (XLK). While PANW has outperformed XLK over longer periods (2 and 3 years), it has underperformed in the most recent 1-week, 1-month, and 3-month periods. Over the year to date and 6-month periods, PANW has shown slight outperformance. This suggests that PANW's recent performance has been weaker compared to its historical performance.
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Risk and Return Analysis:
- The annualized returns show that PANW has provided higher returns than XLK over 1, 2, and 3-year periods. However, PANW has also exhibited higher annualized volatility compared to XLK. For example, in Q1 2024, PANW's volatility ranged from 26.08% to 94.38%, while XLK's volatility ranged from 13.15% to 20.81%. The maximum drawdown for PANW was -36% on 01/10/2023, while the maximum drawdown for XLK was -33.56% on 10/12/2022. This indicates that PANW is a riskier investment compared to XLK.
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Risk-Adjusted Performance:
- The Sharpe Ratio analysis reveals that XLK generally offered better risk-adjusted returns compared to PANW. Although there were periods where PANW's Sharpe Ratio surpassed XLK's, the overall trend indicates that XLK provided more consistent risk-adjusted performance. The beta values show that both PANW and XLK are more volatile than the market, with PANW's beta ranging from 0.98 to 1.46 and XLK's beta ranging from 1.23 to 1.64.
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Overall Assessment:
- Palo Alto Networks (PANW) has demonstrated higher growth potential but also comes with increased risk compared to the Technology Select Sector SPDR Fund (XLK). While PANW has outperformed XLK in terms of annualized returns over longer periods, its higher volatility and larger drawdowns suggest a more aggressive risk profile. The Sharpe Ratio indicates that XLK has provided better risk-adjusted returns overall. Recent trends show that PANW has been underperforming XLK in the short term, and its higher beta suggests greater sensitivity to market movements. Investors should carefully consider their risk tolerance and investment horizon when choosing between PANW and XLK.
Peers Price History(as of 2025-06-27)
- Performance Comparison:
- Palo Alto Networks (PANW) has generally underperformed Zscaler (ZS) and CrowdStrike (CRWD) over most periods. For example, in the Year-To-Date (YTD) performance, PANW's return of 10.97% significantly lags behind ZS's 73.58% and CRWD's 43.76%. However, over a 3-year period, PANW outperformed ZS with a return of 143.64% compared to ZS's 110.9%, but still underperformed CRWD's 196.23%.
- Risk and Return Analysis:
- PANW's annualized returns are generally lower than those of ZS and CRWD. For instance, the 1-year annualized return for PANW is 17.67%, compared to 58.76% for ZS and 27.33% for CRWD.
- PANW's annualized volatility is typically lower than that of ZS and CRWD, indicating it is less prone to large price swings. For example, in Q2 2022, PANW's volatility ranged from 34.15% to 54.16%, while ZS ranged from 82.4% to 88.69% and CRWD ranged from 69.43% to 73.57%.
- PANW's maximum drawdown was -36% on 01/10/2023, which is less severe than ZS's -76.41% on 05/02/2023 and CRWD's -67.69% on 01/06/2023. This suggests that PANW has a more conservative risk profile compared to its peers.
- Risk-Adjusted Performance:
- PANW's Sharpe Ratio is generally lower than that of CRWD, indicating that CRWD offers better risk-adjusted returns. For example, in Q2 2024, PANW's Sharpe Ratio ranged from 0.78 to 1.4, while CRWD's ranged from 1.87 to 2.6. ZS often had the lowest Sharpe Ratios, even negative in some periods, indicating poorer risk-adjusted returns.
- PANW's Beta is around 1, suggesting it moves in line with the market. ZS and CRWD have Betas greater than 1, indicating higher sensitivity to market movements and thus higher risk.
- Overall Assessment:
- PANW demonstrates a more conservative risk profile with lower volatility and drawdowns compared to ZS and CRWD. However, this comes at the cost of lower returns and risk-adjusted performance, as indicated by its lower Sharpe Ratio. ZS and CRWD offer higher potential returns but are also more volatile and prone to larger drawdowns.
- PANW's underperformance in recent periods, such as YTD and 1-year returns, suggests it may not be capturing as much growth potential as its peers in the current market environment. However, its more stable Beta and lower volatility may appeal to investors seeking less risky investments.
Peers Fundamentals(as of 2025-04-30)
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Market Position and Size:
- Palo Alto Networks (PANW) holds a dominant market position with a market capitalization of $133,740.08 million, surpassing both Zscaler (ZS) at $49,094.06 million and CrowdStrike (CRWD) at $124,457.00 million.
- PANW's substantial revenue of $8,874.7 million significantly exceeds that of ZS ($2,546.76 million) and CRWD ($4,136.02 million), further solidifying its market leadership.
- The company's robust EBITDA of $1,897.5 million contrasts sharply with ZS (-$5.72 million) and CRWD ($75.91 million), highlighting its superior operational efficiency.
- PANW's profitability, with a net income of $1,237.8 million, stands in stark contrast to the net losses reported by ZS (-$38.78 million) and CRWD (-$172.3 million), underscoring its financial strength.
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Profitability and Efficiency:
- PANW exhibits strong profitability with a Gross Profit Margin of 73.56%, although slightly lower than ZS (77.33%) and CRWD (74.48%), it remains significantly above the industry average of -52.08%.
- The company's EBITDA Margin of 21.38% is substantially higher than ZS (-0.22%) and CRWD (1.84%), indicating superior operational efficiency.
- PANW's Net Profit Margin of 13.95% is significantly greater than ZS (-1.52%) and CRWD (-4.17%), demonstrating its ability to translate revenue into profit.
- PANW's Return on Average Assets (6.2%), Return on Average Total Equity (21.16%), Return on Average Total Capital (14.81%), and Return On Average Invested Capital (19.94%) all outperform its peers and the industry average, highlighting its efficient use of resources.
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Financial Health and Stability:
- PANW's Current Ratio of 0.85 and Quick Ratio of 0.85 are lower than ZS (1.18 and 1.18, respectively) and CRWD (1.74 and 1.74, respectively), suggesting potential liquidity concerns.
- However, PANW's Total Debt to Total Equity Ratio of 10.08 is significantly lower than ZS (68.08) and CRWD (22.76), indicating a more conservative capital structure.
- PANW's Debt / EBITDA ratio of 0.2 is also lower than CRWD (9.81) and the industry average (6.04), further emphasizing its lower debt burden.
- PANW's Cash Flow / Total Debt ratio of 360.46 is substantially higher than ZS (72.77), CRWD (172.0), and the industry average (-231.87), demonstrating its strong ability to service its debt obligations.
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Valuation and Market Perception:
- PANW's Enterprise Value To Sales ratio of 14.61 is comparable to ZS (13.06) but lower than CRWD (24.84), suggesting a relatively reasonable valuation compared to its revenue.
- PANW's Enterprise Value To EBITDA ratio of 68.15 is significantly lower than CRWD (1353.17) and the industry average (115.65), indicating a more attractive valuation based on its earnings.
- PANW's Price To Earnings ratio of 114.78 is lower than the industry average of 462.74, potentially indicating undervaluation relative to its earnings.
- PANW's Price to Book Ratio of 18.47 is lower than ZS (27.2) and CRWD (36.04) but higher than the industry average of 8.1, suggesting a balanced valuation relative to its book value.
- PANW's Price To Sales Ratio of 15.99 is lower than ZS (19.18), CRWD (29.99), and the industry average (54.74), indicating a more attractive valuation based on its revenue.
- PANW's Price to Free Cash Flow ratio of 44.57 is lower than ZS (71.04) and CRWD (121.33), and significantly lower than the industry average (8166.96), suggesting it is undervalued relative to its free cash flow.
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Cash Flow and Capital Management:
- PANW's Net Operating Cash Flow of $3,207.9 million is significantly higher than ZS ($925.41 million) and CRWD ($1,382.61 million), demonstrating its strong cash generation capabilities.
- PANW's Total Capital Expenditure of $207.3 million is lower than ZS ($234.32 million) and CRWD ($356.85 million), indicating efficient capital management.
- PANW's Free Cash Flow of $3,000.6 million is substantially higher than ZS ($691.09 million) and CRWD ($1,025.76 million), highlighting its ability to generate cash after capital expenditures.
- PANW's Cash Conversion Ratio of 0.42 is greater than ZS (-0.02) and CRWD (-0.29), and significantly greater than the industry average (-1753.41), indicating efficient conversion of revenue into cash.
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Growth and Future Prospect:
- PANW's Sales/Revenue growth of 13.91% is lower than the peer average of 39.48%, indicating slower revenue expansion.
- PANW's EBITDA growth of 28.75% is significantly higher than the peer average of 0.63%, demonstrating improving operational efficiency.
- PANW's Net Income growth of -49.43% is lower than the peer average of 43.3%, indicating challenges in translating revenue into profit.
- PANW's Free Cash Flow growth of -0.39% is lower than the peer average of 77.22%, suggesting less efficient cash generation.
- PANW's 3-year CAGR for Sales/Revenue (19.73%) is lower than its 5-year CAGR (22.15%), indicating a slight deceleration in revenue growth.
- PANW's 3-year CAGR for EBITDA (66.04%) is higher than its 5-year CAGR (44.78%), demonstrating improving operational efficiency over the shorter term.
- PANW's 3-year CAGR for Free Cash Flow (23.17%) is lower than its 5-year CAGR (33.87%), suggesting a deceleration in cash flow generation.
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Potential for Investment:
- PANW presents a compelling investment opportunity due to its dominant market position, strong profitability, efficient cash flow generation, and conservative capital structure.
- While its revenue growth is lower than some of its peers, its superior profitability and financial stability make it a relatively lower-risk investment option.
- PANW's attractive valuation metrics, such as its lower P/E ratio and EV/EBITDA, suggest potential undervaluation relative to its earnings and cash flow.
- Investors seeking a combination of stability, profitability, and cash flow generation may find PANW to be an attractive investment choice.
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Key Risks and Considerations:
- PANW's lower liquidity ratios compared to its peers may pose a risk in terms of meeting short-term obligations.
- Its slower revenue growth compared to its peers may indicate a loss of market share or a less competitive product offering.
- The company's negative Net Income growth in the most recent year raises concerns about its ability to translate revenue into profit.
- Investors should carefully monitor PANW's revenue growth, liquidity, and profitability trends to assess its long-term investment potential.
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Overall Assessment:
- Palo Alto Networks (PANW) is a financially strong and well-positioned company within the cybersecurity industry.
- Its dominant market position, robust profitability, efficient cash flow generation, and conservative capital structure make it a relatively stable and attractive investment option.
- While its revenue growth is lower than some of its peers, its superior profitability and financial stability provide a solid foundation for future growth and shareholder value creation.
- Investors should carefully consider PANW's strengths and weaknesses, as well as the key risks and considerations, before making an investment decision.
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