Figuring out whether Palo Alto Networks stock is overvalued isn't as simple as glancing at a single number. It requires stacking the company's valuation multiples against cybersecurity peers like CrowdStrike and Fortinet, then checking how those ratios compare to PANW's own historical averages. That combination of peer comparison and historical context gives you a more honest picture of what you're actually paying for.
Key takeaways
- No single valuation metric tells the full story. Comparing P/E, price-to-sales, and PEG ratios side by side across peers gives you a more balanced read on whether PANW valuation is stretched or reasonable.
- Cybersecurity stocks as a group tend to trade at premium multiples, so "expensive" is relative. The question is whether PANW is expensive even by its own sector's standards.
- Checking a company's current multiples against its own 5-year average reveals whether the market is pricing in more optimism (or pessimism) than usual.
- Forward-looking metrics like forward P/E and PEG ratio account for expected growth, which matters a lot in a high-growth sector.
- Valuation is one input, not a verdict. A stock can look overvalued on paper and still outperform if growth exceeds expectations.
Why valuation matters for cybersecurity stocks
Cybersecurity companies rarely look "cheap" by traditional standards. The entire sector trades at elevated multiples because investors are pricing in years of expected growth driven by rising cyber threats, cloud migration, and expanding enterprise budgets. That premium is the norm, not the exception.
The trap is comparing a cybersecurity company to, say, a utility or a consumer staples stock and concluding it's wildly overpriced. That's an apples-to-oranges mistake. Instead, the useful question is: how does PANW's valuation compare to other companies in the same business, facing the same tailwinds, and growing at similar rates? That peer-relative approach strips away sector-wide inflation and focuses on company-specific pricing.
Is Palo Alto Networks stock overvalued compared to peers?
To answer this, you need to line up three metrics across PANW, CrowdStrike (CRWD), and Fortinet (FTNT): the price-to-earnings ratio, the price-to-sales ratio, and the PEG ratio. Each tells you something different, and they work best together.
Price-to-Earnings (P/E) Ratio: This measures how much investors pay per dollar of earnings. A higher P/E suggests the market expects stronger future growth, but it also means there's more room for disappointment. For profitable cybersecurity companies, P/E ratios typically range from 30 to 80 or higher.
Palo Alto Networks has historically traded at a P/E that sits between CrowdStrike (which often carries the highest multiple in the group) and Fortinet (which tends to trade at a relative discount). If PANW's P/E is closer to CrowdStrike's, you're paying a premium-tier price. If it's closer to Fortinet's, you might be getting a comparatively better deal. The key is checking where it falls right now relative to both peers using a tool like the Rallies.ai PANW stock page.
What does the price-to-sales ratio reveal about PANW valuation?
Price-to-sales is especially useful for high-growth tech companies because it sidesteps the noise around earnings (which can be distorted by stock-based compensation, one-time charges, and accounting choices). It simply asks: how much are you paying per dollar of revenue?
Price-to-Sales (P/S) Ratio: Revenue-based valuation metric. A P/S of 10 means investors pay $10 for every $1 of annual revenue. Useful when earnings are volatile or when comparing companies at different stages of profitability.
In cybersecurity, P/S ratios tend to cluster between 8 and 25 for large-cap names, depending on growth rates and margin profiles. CrowdStrike typically commands a higher P/S than PANW, while Fortinet often trades at a lower multiple. If PANW's P/S is significantly above its peer group median, that's a data point (not a conclusion) suggesting the stock might be priced optimistically.
How does the PEG ratio change the picture?
Here's the thing about P/E and P/S: they don't account for growth. A stock with a P/E of 60 might be a bargain if earnings are growing at 50% annually. It might be absurdly expensive if earnings are growing at 10%. The PEG ratio fixes this blind spot.
PEG Ratio: The P/E ratio divided by the expected earnings growth rate. A PEG of 1.0 is often considered "fair value" by rule-of-thumb investors. Below 1.0 may suggest undervaluation relative to growth; above 2.0 may suggest a stretched valuation. It's imperfect but useful for growth-stock comparisons.
When comparing PANW, CRWD, and FTNT on a PEG basis, the rankings can shift meaningfully from a straight P/E comparison. A company with the highest P/E might have the lowest PEG if its growth rate is fast enough to justify the premium. This is where the analysis gets interesting, and where many surface-level "overvalued" or "undervalued" conclusions fall apart.
Comparing PANW's current multiples to its own 5-year average
Peer comparison tells you how PANW is priced relative to competitors. Historical comparison tells you how it's priced relative to itself. Both matter, and they sometimes disagree.
If PANW's trailing P/E is meaningfully above its 5-year average, the market is expressing more confidence in the company's future than it has in the recent past. That could be justified by accelerating revenue growth, improving margins, or a strategic shift (like PANW's well-known platformization strategy). Or it could mean sentiment has gotten ahead of fundamentals.
Conversely, if the current P/E is below the 5-year average, that doesn't automatically make it a bargain. It could reflect slowing growth, competitive pressure, or broader market risk-off sentiment hitting growth stocks.
The same logic applies to price-to-sales. Check whether the current P/S sits above, below, or in line with PANW's own historical range. A stock trading at the top of its own historical P/S range and above its peer group average is carrying a double dose of optimism. That's not necessarily bad, but it's worth understanding before you form a view.
What "fair value" actually means for Palo Alto Networks
The phrase "Palo Alto Networks fair value" gets searched a lot, but fair value isn't a single number. It's a range, and it depends entirely on the assumptions you feed into whatever model you're using.
A discounted cash flow (DCF) model will give you a different fair value depending on your revenue growth assumptions, margin trajectory, discount rate, and terminal growth rate. Tweak any of those, and the output changes substantially. Two analysts can use the same model framework and arrive at fair value estimates that differ by 30% or more.
That's why multiples-based valuation (comparing P/E, P/S, and PEG to peers and historical averages) is a useful complement to DCF. It grounds your analysis in what the market is actually paying for comparable companies right now, rather than relying entirely on projected cash flows years into the future.
For a deeper dive into how financial metrics like these work together, it's worth building a framework you can apply consistently across different stocks.
Common mistakes when evaluating whether PANW is expensive
A few errors come up repeatedly when investors try to determine if a stock is overvalued:
- Using only one metric. A high P/E alone doesn't mean a stock is overvalued. Context from P/S, PEG, and growth rates changes the interpretation completely.
- Ignoring the sector premium. Comparing PANW's valuation to the S&P 500 average P/E is misleading. Cybersecurity companies trade at structural premiums for defensible reasons.
- Treating "expensive" and "overvalued" as synonyms. A stock can be expensive (high multiples) without being overvalued if the underlying business justifies the price through growth, margins, and market position.
- Anchoring to a past price. "PANW used to trade at a P/E of 40, so 55 must be overvalued." Maybe. But if the company's growth profile has improved, a higher multiple might be warranted.
- Skipping forward estimates. Trailing P/E reflects the past. Forward P/E reflects expectations. For a company growing as fast as PANW, the forward number is often more informative.
How to build your own PANW valuation comparison
You don't need a Bloomberg terminal to do this. Here's a straightforward process:
- Pick your peer set. For PANW, the natural comparison group includes CrowdStrike, Fortinet, Zscaler, and Check Point. Keep it to 3-5 names to stay focused.
- Pull the same metrics for each. Trailing P/E, forward P/E, P/S, and PEG. Make sure you're using the same timeframe for all companies.
- Calculate the peer median. This gives you a benchmark. Where does PANW sit relative to the group's midpoint?
- Compare to PANW's own history. Pull PANW's 5-year average for each metric. Is the company trading above or below its own norms?
- Factor in growth rates. Look at expected revenue growth and earnings growth for the next 1-2 years. A higher-growth company should trade at a higher multiple, all else being equal.
- Form a view, not a verdict. Valuation analysis gives you a framework for thinking about price. It doesn't give you a buy or sell signal.
You can speed up this process using the Rallies.ai stock screener to pull and compare metrics across your peer set in one place.
What growth expectations are baked into PANW's price
This is the question that separates casual valuation checks from real analysis. When you see PANW trading at a given P/E multiple, the market is implicitly forecasting a certain level of future earnings growth. If the company delivers above that implied rate, the stock tends to work. If it misses, the multiple compresses and the stock can drop even on decent (but not good enough) results.
You can reverse-engineer implied growth by comparing PANW's forward P/E to its expected earnings growth rate. If the forward P/E is 50 and analysts expect 25% earnings growth, the market is pricing in a PEG of 2.0. That's above the rule-of-thumb "fair" level of 1.0, which means the market either expects growth to accelerate beyond consensus or is willing to pay a structural premium for PANW's competitive position. Both are possible. Neither is guaranteed.
The Rallies AI Research Assistant can help you run this kind of implied-growth analysis quickly, without manually hunting through financial statements.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Compare Palo Alto Networks' valuation metrics to other cybersecurity companies — how do their P/E, price-to-sales, and PEG ratios stack up against peers like CrowdStrike and Fortinet, and how does PANW's current valuation compare to its own 5-year average?
- Is Palo Alto Networks stock expensive? Compare its P/E, price-to-sales, and forward estimates to the rest of its industry.
- What growth rate is implied by PANW's current forward P/E, and how does that compare to consensus estimates for the next two years?
Frequently asked questions
Is Palo Alto Networks stock overvalued right now?
It depends on which metrics you use and what you compare against. If PANW's P/E and P/S ratios are above both peer medians and its own 5-year averages, the stock is trading at a premium by historical and relative standards. Whether that premium is justified depends on whether the company's growth and margin trajectory support it. Valuation is a framework for analysis, not a single answer.
What is a reasonable P/E ratio for PANW?
Cybersecurity companies with strong growth profiles typically trade at P/E ratios ranging from 30 to 70 or higher. PANW's "reasonable" P/E depends on its earnings growth rate and how peers are valued. A PEG ratio closer to 1.0-1.5 generally suggests the P/E is in line with growth expectations, while a PEG above 2.0 may indicate stretched pricing.
How does PANW valuation compare to CrowdStrike?
CrowdStrike has historically traded at a premium to PANW on both P/E and P/S, partly because of its higher revenue growth rate and cloud-native positioning. However, the gap between the two has narrowed and widened over time. Comparing them on a PEG basis often produces a tighter spread than raw P/E because their growth rates differ meaningfully.
Is PANW expensive compared to Fortinet?
PANW generally trades at higher multiples than Fortinet. Fortinet's business model includes a significant hardware component, and its growth rate has historically been lower than PANW's, which partly explains the valuation gap. If PANW's P/E is, say, 40% higher than Fortinet's but its growth rate is also meaningfully higher, the premium may be reasonable. If the growth gap narrows but the valuation gap doesn't, that's worth watching.
What is the best metric for determining Palo Alto Networks fair value?
There's no single best metric. P/E is useful for profitable companies but ignores growth. P/S removes earnings noise but doesn't account for profitability differences. PEG adjusts for growth but depends on which growth estimate you use. The most reliable approach is using all three together, compared against both peers and PANW's own historical range. A DCF model adds another perspective but introduces its own assumption-driven uncertainty.
Does a high P/E automatically mean PANW is overvalued?
No. A high P/E means the market expects strong future earnings growth. If the company delivers on or exceeds those expectations, a high P/E can be perfectly justified. The stock only becomes "overvalued" in hindsight if growth disappoints and the multiple contracts. That's why pairing P/E with growth expectations (via the PEG ratio) gives a more complete picture.
How often should I check PANW's valuation metrics?
Quarterly is a reasonable cadence for most investors, roughly aligned with earnings reports when new financial data becomes available. Checking daily adds noise without much signal. What matters is tracking whether the valuation trend is expanding, compressing, or stable relative to peers and history. You can set up watchlists on Rallies.ai portfolio tools to monitor this passively.
Bottom line
Determining whether Palo Alto Networks stock is overvalued requires more than a single ratio or a gut reaction to the share price. It means comparing P/E, price-to-sales, and PEG ratios against cybersecurity peers like CrowdStrike and Fortinet, then measuring those same metrics against PANW's own 5-year history. The answers won't always agree, and that tension is where the real insight lives.
Valuation analysis is a starting point for deeper research, not a substitute for it. If you want to explore how financial metrics work together to inform investment decisions, the Rallies.ai financial metrics guide is a good next step for building a repeatable framework.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.
