Palo Alto Networks (PANW 1.21%), the platform-focused cybersecurity company behind Prisma, Cortex, and its next-gen firewall offerings, has rallied sharply since mid-August. After closing at about $176 on Aug. 18, the day it reported results, the growth stock trades at about $202 as of this writing -- a gain of roughly 15%. The move reflects renewed confidence in the company's growth algorithm and a guidance for more of the same.
Some investors may be tempted to chase the momentum. But should they? The business is performing well, and management sounded constructive about fiscal 2026. But the current price arguably already bakes in a lot of good news.
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Impressive business momentum
Importantly, Palo Alto's latest quarter delivered impressive broad-based progress. In its fourth quarter of fiscal 2025 (the period ended July 31), revenue rose 16% year over year to about $2.5 billion. For the full fiscal year, revenue increased 15% to roughly $9.2 billion.
More importantly, the company's recurring engines remained strong. Remaining performance obligations (RPO) climbed 24% to $15.8 billion, and next-generation security annual recurring revenue (ARR) rose 32% to $5.6 billion. Management also highlighted continued operating efficiency alongside robust free cash flow.
Chairman and CEO Nikesh Arora framed the demand backdrop succinctly in the news release:
Our strong execution in Q4 reflects a fundamental market shift in which customers understand that a fragmented defense is no defense at all against modern threats. They are partnering with us because our platforms are designed to work in concert, creating powerful operational synergies that deliver superior, near real-time outcomes and the efficiency our customers need.
He added that the company "surpassed the $10 billion revenue run-rate milestone," exiting fiscal 2025 with accelerating RPO.
Management's fiscal 2026 outlook calls for revenue of about $10.48 billion to $10.53 billion, up roughly 14% at the midpoint, with a non-GAAP operating margin near 29% and adjusted free cash flow margin of 38% to 39%.
Competitive context helps explain why investors rewarded the print. CrowdStrike (CRWD -0.63%), a fast-growing endpoint rival, reported second-quarter fiscal 2026 revenue up 21% year over year to $1.17 billion, while Zscaler's fourth-quarter revenue increased 21% to $719 million and Fortinet's Q2 revenue grew 14% to $1.63 billion. Against strong peers, Palo Alto's combination of double-digit growth at scale and large, expanding RPO underscores solid demand for its consolidated platform.
Competition and valuation are real concerns
Of course, strong fundamentals do not automatically make the stock a buy. At roughly $202 per share, Palo Alto's market capitalization is about $135 billion. Set against fiscal 2025 revenue of approximately $9.2 billion, shares change hands at roughly 15 times trailing sales. Even giving credit for management's fiscal 2026 revenue guide near $10.5 billion, the stock still implies about 13 times forward sales. Those are demanding multiples in a sector where capable competitors are growing quickly and pushing hard into adjacent categories.
There are also real competitive and execution risks. CrowdStrike continues to expand its platform and guided to ARR growth of 20%-plus in its next fiscal year. Zscaler surpassed $3 billion in ARR with strong billings, and Fortinet remains formidable in secure networking.
Platform consolidation is an advantage for Palo Alto, but it is not a free pass. Continued large-deal momentum, durable net retention, and margin progress need to show through quarter after quarter to defend today's price. Any slip in growth, or a tougher macro that extends deal cycles, could pressure the shares.
Palo Alto Networks remains a high-quality cybersecurity leader with meaningful recurring revenue, rising RPO, and strong cash generation -- and guidance points to continued double-digit expansion and healthy profitability. But the stock's valuation is arguably already pricing in that story.
For investors considering a potential new investment today, patience makes sense. Sure, momentum can continue -- especially if management keeps executing. But buying after a double-digit post-earnings run at a mid-teens sales multiple could prove unrewarding if growth merely meets guidance or if competition intensifies. Watching for either a pullback or for fundamentals to outpace expectations would improve the risk-reward balance from here.
