Stone Fox Capital
Founder, CIO & Portfolio Manager of Stone Fox Capital
Palo Alto Networks has nowhere to go at its current valuation because its FY27 guidance looks very low. Its fiscal Q4 beat as expected, with non-GAAP EPS of $1.02 and revenue of $3.41B, up 34.3%. But guidance for next-generation security ARR growth of 22-23% and RPO growth of 19-20% does not support the stock's multiple. x.comÂ
Palo Alto Networks is too expensive at 21x sales and 79x forward earnings for a company expected to grow only about 20% over the next few years. Cybersecurity matters more as AI advances, but even a good company has to be bought at the right price, which is why the stock fell even after a big earnings beat. x.comÂ
Palo Alto Networks is an expensive stock for the profit growth it will deliver over the next couple of years, despite another strong quarter and a promising annual guide. x.com x.comÂ
Palo Alto Networks looks set for a near-term move to $400-$410 after its CEO bought $10M of shares. The setup resembles Dell's, and cybersecurity looks attractive here. x.comÂ
Palo Alto Networks' valuation makes little sense: FY2027 guidance of $4.19 EPS at the high end implies only 9.7% growth, yet the stock trades at 85x FY2027 EPS, an 8.7x PEG ratio. By contrast, Credo guides revenue up at least 85%, implying 85% EPS growth at 28x, a 0.33x PEG, though connectivity and cybersecurity aren't directly comparable. x.comÂ
Palo Alto Networks is a great business with the best management team, but after an insane run its valuation leaves better risk-reward elsewhere. It trades at 24x sales, 68x EBITDA and 90x earnings even on adjusted EPS that adds back stock compensation. Upgrades from Wells Fargo and BNP look like the sell side chasing performance. Meta, for example, could earn $70 or more per share longer term and offers better risk-reward even at $600. x.comÂ
Cybersecurity is a clear secondary beneficiary of AI that has been lumped into the software selloff, and Palo Alto Networks is one of the safe bets. It trades at 9x NTM sales for about 23% growth, with a Rule of 40 score above 60 and its CEO buying shares, which is hard to ignore. CrowdStrike and Zscaler are the other safe bets. x.comÂ
CrowdStrike and Palo Alto Networks need 50%-plus growth to deliver even a 10% IRR over a realistic horizon, but almost no conceivable case gets them there. They feel as dumb as Zoom and Peloton in 2021. Even if revenue doubles over four to five years, Palo Alto would still trade at 10x revenue and CrowdStrike at 20x, leaving little prospect of a real IRR; Palo Alto is growing in the teens today. x.com x.com x.comÂ
Combining estimated NTM revenue growth with trailing GAAP EBITDA margin makes Palo Alto Networks, Datadog, JFrog, Rubrik and Snowflake look overvalued against forward EV/sales. Zoom, Alphabet, Oracle, AppLovin, Microsoft, Fair Isaac, Adobe, Amazon and Teradata remain undervalued on this Rule of 40 comparison; Palantir, Cloudflare and CrowdStrike remain overvalued. x.comÂ
Palo Alto Networks was unjustly sold off on overblown AI concerns, when AI adoption should actually be a tailwind. Its Next-Gen Security ARR has tripled over three years. x.comÂ
Palo Alto Networks looks overextended at 100x EPS for a company growing at most 20%, after running from 308 to 389. x.comÂ