M&M Lion Fund
Small-Fund Portfolio Manager Since 2023, IE Business School & Javeriana Background
Palo Alto Networks looks expensive, and a material GAAP write-down is a real risk. Goodwill now makes up 47% of total assets and 88% of stockholders' equity, and it likely overpaid for CyberArk, making an impairment highly probable. Organic growth is about 14%, yet the stock trades above 17x next-twelve-month EV to revenue. x.comÂ
Palo Alto Networks at 21x forward sales is too expensive for 17% pro-forma growth, despite BTIG's view that it is worth more than the current price. x.comÂ
Palo Alto Networks looks stretched, with valuation ratios and growth rates resembling its 2021 levels, and the forward multiple is still 22x. @investing_bear makes the same case for CrowdStrike, whose trailing price-to-sales is 43.5 on 26% revenue growth, versus 38.4 at end-2021 on 63% growth. 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
Palo Alto Networks is the most overvalued cybersecurity stock by a mile, at about 25x forward revenue while growing only 15% organically. Anything above 10x revenue is hard to justify, let alone 20x. Worse, the "Mythos moment" that sent cyber valuations vertical has not yet shown up in its results. 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' 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 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 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
