Palo Alto Networks, Inc. (PANW): A Bear Case Theory

We came across a bearish thesis on Palo Alto Networks, Inc. (PANW) on Substack by Magnus Ofstad. In this article, we will summarize the bears’ thesis on PANW. Palo Alto Networks, Inc. (PANW)’s share was trading at $182.32 as of March 21^st. PANW’s trailing and forward P/E were 103.01 and 56.18 respectively according to Yahoo Finance.

Cybersecurity remains a critical investment sector, especially during recessionary fears, as businesses prioritize digital protection despite economic downturns. Companies like CrowdStrike, Zscaler, and Palo Alto Networks (PANW) are at the forefront of innovation, leveraging AI and cloud technology to enhance security solutions. PANW, a unified data security platform, has introduced AI-driven threat detection and response mechanisms, improving accuracy and minimizing false positives. Its Precision AI capabilities have strengthened its position in the cybersecurity market, making it an attractive yet potentially overvalued investment based on current valuations.

Last year, PANW transitioned to a platformization and vendor consolidation strategy, shifting away from a fragmented security model. This strategic pivot initially led to sales struggles, but revenue growth rebounded as the new approach gained traction. Currently, PANW is growing at approximately 15% annually, with analysts projecting sustained growth at this pace. However, despite strong fundamentals, its valuation remains a key concern. Over the past year, PANW’s stock has fluctuated between $132 and $209, currently trading at $182. A discounted cash flow (DCF) analysis suggests PANW is overvalued, with a fair value estimate of $155 per share.

Palo Alto Networks, Inc. (PANW) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 83 hedge fund portfolios held PANW at the end of the fourth quarter which was 64 in the previous quarter. While we acknowledge the risk and potential of PANW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PANW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.