Palo Alto Networks (PANW 1.18%) shares slipped last week despite the cybersecurity company reporting solid fiscal 2026 first-quarter results. The stock has been stuck in neutral lately, and it's down modestly over the past year.
Let's dig into the company's results and prospects to see if this dip could be a buying opportunity.
Image source: Getty Images.
Solid results and another acquisition
For Palo Alto's fiscal 2026 Q1, ended Oct. 31, revenue climbed 16% year over year to $2.47 billion, which was at the high end of its prior forecast for revenue of between $2.45 billion and $2.47 billion. Service revenue rose by 14% to over $2 billion, with both subscription and support revenue each rising by 14%. Product revenue increased by 23% to $343 million.
NASDAQ: PANW
Key Data Points
The company continued to see solid momentum with its platformization strategy (selling its solutions as one of three cybersecurity platforms instead of as point solutions), with 16 new platformization deals in the quarter. Meanwhile, its XSIAM (extended security intelligence and automation management) platform, which combines features like SIEM (security information and event management), XDR (extended detection and response), and SOAR (security orchestration, automation, and response), into one platform, saw its number of deals double. This included its largest XSIAM deal to date with a U.S. telecom. The total deal was for $100 million, with $85 million of that going toward its XSIAM platform.
Next-generation security continues to power the company's growth, with next-generation security annual recurring revenue (ARR) increasing by 29% to $5.85 billion. Its largest next-generation security solution is SASE (secure access service edge), which saw its ARR climb 34% to more than $1.3 billion. It grew its number of SAS customers by 18% to more than 6,800.
Remaining performance obligations (RPO), which is the revenue a company expects to generate from existing contracts, rose by 24% year over year to $15.5 billion, which was in line with its $15.4 billion to $15.5 billion forecast.
Adjusted earnings per share (EPS) rose by 19% year over year to $0.93, which was ahead of its guidance of $0.88 to $0.90.
Looking ahead, Palo Alto upped its full-year guidance for revenue and EPS slightly. Below is a table of the company's fiscal Q2 and full-year forecast.
| Metric | Fiscal 2026 Q2 Forecast | Prior Fiscal 2026 Forecast (Aug) | Current Fiscal 2026 Forecast (Nov) |
|---|---|---|---|
| Revenue | $2.57 billion and $2.59 billion | $10.475 billion to $10.525 billion | $10.5 billion to $10.54 billion |
| Revenue growth | 14% to 15% | 14% | 14% |
| Next Gen Security (NGS) ARR | $6.11 billion and $6.14 billion | $7 billion to $7.1 billion | $7 billion to $7.1 billion |
| NGS ARR growth | 28% | 26% to 27% | 26% to 27% |
| Adjusted EPS | $0.93 to $0.95 | $3.75 to $3.85 | $3.80 to $3.90 |
| EPS growth | 15% to 17% | 12% to 15% | 14% to 17% |
Data source: Palo Alto Networks.
The company also announced that it would acquire next-gen observability platform Chronosphere, which currently has an ARR of $160 million, while growing triple digits, for $3.35 billion. It said the company is a category leader in a market with a $24-billion-and-growing TAM (total addressable market), and that the company is well positioned for the artificial intelligence (AI) age.
Should investors buy the dip?
Palo Alto continued to implement its platformization strategy, although revenue growth remains in the mid-teens. It's now turning to acquisitions to try and boost growth. It's currently in the process of buying CyberArk (CYBR 1.12%), and before that deal has even closed, it's added Chronosphere to the mix. Palo Alto appears to want to be a consolidator in the cybersecurity space, and these deals should help boost its platformization strategy.
Turning to valuation, the stock trades at a forward price-to-sales ratio (P/S) of 12 times fiscal 2026 estimates, which seems high given its current revenue growth. That's likely why the stock has largely jogged in place over the past year.
While I think Palo Alto's strategy is sound, I'd need to see the stock slide further before adding shares, as its valuation just isn't that attractive.
