Is It Time To Reconsider Palo Alto Networks (PANW) After Recent Share Price Weakness?
- If you are asking whether Palo Alto Networks at about US$182 per share still offers solid value, you are not alone. The answer depends a lot on how you look at its valuation.
- The stock has had a mixed run, with a 2.5% decline over the last 7 days and an 8.4% decline over the last 30 days, yet it remains slightly positive year to date at 1.5% and up 3.8% over the last year, with a very large 3 year return and a sizeable 5 year gain of 194.9%.
- Recent coverage has focused on Palo Alto Networks as a major cybersecurity player, with attention on how its platform approach and scale position it in a sector where digital security remains a priority for enterprises and governments. This backdrop helps frame recent share price moves, as investors weigh long term demand for cybersecurity against shorter term sentiment shifts.
- On Simply Wall St's valuation framework, Palo Alto Networks scores 3 out of 6. Next we will compare what different valuation approaches say about the stock and then finish by looking at a broader way to think about value that goes beyond the headline numbers.
Find out why Palo Alto Networks's 3.8% return over the last year is lagging behind its peers.
Approach 1: Palo Alto Networks Discounted Cash Flow (DCF) Analysis
The Discounted Cash Flow, or DCF, approach estimates what a company might be worth by projecting its future cash flows and then discounting those back to today to arrive at a present value per share.
For Palo Alto Networks, the model used is a 2 Stage Free Cash Flow to Equity approach. The company’s latest twelve month Free Cash Flow is about $3.75b. Based on analyst inputs for the earlier years and Simply Wall St extrapolations after that, projected Free Cash Flow reaches about $13.38b in 2035, with interim years such as 2026 at $4.00b and 2030 at $8.45b. All figures here are in US$.
When these projected cash flows are discounted back using the DCF model, the estimated intrinsic value comes out at about $245.96 per share. Compared with the current share price of roughly $182, this implies an intrinsic discount of about 26.0%, which suggests that the shares are trading below the model’s estimate of value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Palo Alto Networks is undervalued by 26.0%. Track this in your watchlist or portfolio, or discover 878 more undervalued stocks based on cash flows.
Approach 2: Palo Alto Networks Price vs Earnings
For profitable companies like Palo Alto Networks, the P/E ratio is a common way to think about value because it links what you pay per share to the earnings that each share currently generates.
What counts as a “normal” P/E often reflects how fast investors expect earnings to grow and how much risk they see. Higher expected growth and lower perceived risk can support a higher P/E, while slower growth or higher risk typically support a lower one.
Palo Alto Networks currently trades on a P/E of about 113.65x. That is above the Software industry average of roughly 32.25x and also above a peer group average of about 43.74x. Simply Wall St’s Fair Ratio for Palo Alto Networks is 42.13x, which is its proprietary estimate of what a reasonable P/E might be given factors such as earnings growth, profit margins, industry, market cap and specific risks.
The Fair Ratio aims to be more tailored than a simple comparison with peers or the industry, because it tries to align the multiple with the company’s own characteristics rather than broad group averages.
Since the current P/E of 113.65x sits well above the Fair Ratio of 42.13x, the multiple approach points to the shares looking expensive on earnings.
Result: OVERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1456 companies where insiders are betting big on explosive growth.
Upgrade Your Decision Making: Choose your Palo Alto Networks Narrative
Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach your own story about Palo Alto Networks to the numbers by linking a view on its future revenue, earnings and margins to a forecast and then to a fair value. This updates automatically as new news or earnings arrive, so you can compare that fair value with the current price to decide what action makes sense for you, whether you side with a more optimistic community view closer to about US$240 per share or a more cautious one nearer US$131. All of this is available within an easy to use tool on the Community page that is already used by millions of investors.
Do you think there's more to the story for Palo Alto Networks? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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