Is It Time to Purchase Palo Alto Networks Inventory on the Dip?

It has been a troublesome previous yr for the inventory of Palo Alto Networks (NASDAQ: PANW), with the inventory down greater than 25% as of this writing. In the meantime, the inventory sank additional following the announcement final week of its fiscal 2026 second-quarter (Q2) earnings outcomes.

Let’s delve into the cybersecurity firm’s newest report and prospects to see if the inventory’s current weak spot is a shopping for alternative.

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As Palo Alto has launched into its platformization technique (promoting its options as one in all three cybersecurity platforms as an alternative of as level options), the corporate has change into aggressive on the acquisition entrance so as to add new cybersecurity options. In January, it closed its acquisition of real-time knowledge monitoring firm Chronosphere, whereas earlier this month, it accomplished its acquisition of privileged entry firm CyberArk. In the meantime, together with its earnings report, it additionally introduced that it’ll purchase Koi, which supplies agentic synthetic intelligence (AI) enterprise endpoint safety options.

Whereas these offers strengthen Palo Alto’s positioning within the cybersecurity area and broaden on its platformization technique, they may also weigh on its earnings per share (EPS) within the close to time period. That is mainly as a result of inventory element of the massive CyberArk deal.

For Palo Alto’s fiscal 2026 Q2, ended Jan. 31, income jumped 15% yr over yr to $2.59 billion, which was on the excessive finish of its earlier forecast for income of between $2.57 billion and $2.59 billion. Service income elevated by 13% to $2.08 billion, with subscription income climbing by 14% and help income up 12%. Product income climbed by 22% to $514 million, led by development in software program firewalls.

Subsequent-generation safety as soon as once more powered Palo Alto’s development, with next-generation safety annual recurring income (ARR) surging by 33%, or 28% excluding acquisitions, to $6.33 billion. Its largest next-generation safety answer is SASE (safe entry service edge), which noticed its annual recurring income (ARR) soar about 40% to greater than $1.5 billion.

Adjusted earnings per share (EPS) surged by 27% yr over yr to $1.03, which was forward of its steering of $0.93 to $0.95.

Trying forward, Palo Alto up to date its full-year steering, taking its income up and EPS down, given its current acquisitions. Beneath is a desk of the corporate’s fiscal Q3 and full-year forecast.

Information supply: Palo Alto Networks. FY = full yr. ARR = Annualized recurring income. NGS = Subsequent-Gen Safety.

The drop in inventory value has taken Palo Alto to a way more engaging valuation than it has traded at up to now, with a ahead price-to-sales ratio (P/S) of 9 instances fiscal 2027 estimates and a ahead price-to-earnings ratio (P/E) of 33 instances 2027 estimates. Whereas its current acquisitions will initially trigger some EPS stress, these appear to be good strikes that may assist with its platformization strategy over the long run.

As such, I feel buyers can look to build up the inventory at present ranges on this dip.

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Geoffrey Seiler has no place in any of the shares talked about. The Motley Idiot recommends Palo Alto Networks. The Motley Idiot has a disclosure coverage.

Is It Time to Purchase Palo Alto Networks Inventory on the Dip? was initially revealed by The Motley Idiot