Is This Cybersecurity Stock-Split Stock a Buy Now?

Palo Alto Networks (PANW) recently split its stock 2-for-1, a move that typically signals a company's confidence in its future prospects. But is this cybersecurity stock-split stock a buy now? Let's dive into the numbers and expert opinions to find out.



First, let's look at the company's financials. In the first quarter of fiscal year 2025, Palo Alto Networks' next-gen security annual recurring revenue (ARR) grew 40% year over year to $4.5 billion. In contrast, its overall revenue increased by only 14% to $2.1 billion. This disparity indicates that while its legacy platforms are struggling, its next-gen platforms are driving significant growth.

However, Palo Alto Networks' overall revenue growth rate is expected to remain at a 14% pace for FY 2025, while its next-gen ARR is expected to increase at a 31% to 32% pace. This guidance suggests that the company's growth trajectory is still heavily reliant on its next-gen platforms.



Now, let's consider the stock's valuation. Palo Alto Networks trades at around 50x next year's earnings, which is a premium valuation in the cybersecurity market. While this valuation may seem high, the robust growth of its next-gen platforms offsets it. The long-term forecast is for earnings growth to accelerate near the end of this decade and sustain the higher pace well into the next, bringing the valuation down into a more reasonable low-20x range.

But is Palo Alto Networks' current earnings growth rate sufficient to justify its stock price? Some experts argue that the company's mid-teen CAGR may not be enough to support its premium valuation. In comparison, CrowdStrike (CRWD) is expected to have a higher earnings growth rate of around 73% from fiscal 2024 to 2027, which could make it a more attractive investment option for those seeking high growth.



In conclusion, while Palo Alto Networks' recent stock split may signal confidence in its future prospects, its valuation and earnings growth rate may not be sufficient to justify its current stock price. Investors should consider the company's balance between struggling legacy platforms and booming next-gen security platforms, as well as its premium valuation and mid-teen CAGR, when deciding whether to buy the stock now. As always, it's essential to do your own research and consider your risk tolerance before making any investment decisions.