In a note released yesterday, Scotiabank analyst Patrick Colville raised his price target on Palo Alto Networks (PANW -9.06%) stock ahead of earnings, predicting a strong report, but arguing even if Palo Alto missed, investors shouldn't sell the stock.
Well, Palo Alto just released earnings.
And as of 9:45 a.m. ET, its stock is down 9%.
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Palo Alto Networks Q4 earnings
Seems somebody wasn't buying what Scotiabank was selling. So what went wrong?
Palo Alto grew its revenue 34% year over year in Q4, passing $3.4 billion in sales versus the $3.35 billion Wall Street was looking for. GAAP results showed a $0.35 per share loss for the quarter, reversing the $0.36 per share profit Palo Alto earned in last year's Q4. Luckily for Palo Alto, its adjusted (non-GAAP) earnings -- which are the ones Wall Street focuses on -- came in at $1.02 per share, four cents more than expected.
Free cash flow was $1.3 billion for the quarter.
For the year, Palo Alto reported $11.5 billion in total revenue, $0.40 per share in GAAP profit, and free cash flow of $4.1 billion.
NASDAQ: PANW
Key Data Points
Is this good news or bad news for Palo Alto stock?
Is this something that should make Palo Alto investors happy or sad? Well, the GAAP number certainly underwhelms. Compared to the $1.60 Palo Alto earned in fiscal 2025, $0.40 represents a 75% year-over-year decline in profit per share. $4.1 billion in free cash flow, on the other hand, is up 17%.
Still, on a $295 billion market capitalization, that's a 72x price-to-free cash flow ratio we're looking at in Palo Alto. That's a high price to pay for only 17% growth, forcing me to agree with the rest of the market today: Palo Alto Networks stock is a sell.
