If you want to learn how to research Palo Alto Networks stock, start with what the company actually does and how it makes money. From there, work through its financial statements, assess its valuation relative to peers, map out its competitive position in cybersecurity, and identify the risks that could derail your thesis. That sequence gives you a structured PANW due diligence process that covers the essentials without skipping steps.
Key takeaways
- Begin your Palo Alto Networks research guide with the business model: understand how the company generates revenue from network security, cloud security, and security operations
- Analyze financial health by examining revenue growth trends, free cash flow generation, margins, and the shift from one-time product sales to recurring subscription revenue
- Compare PANW's valuation multiples against other cybersecurity companies to determine whether the stock trades at a premium that's justified by its growth profile
- Evaluate competitive positioning against rivals like CrowdStrike, Fortinet, and Zscaler to understand where Palo Alto Networks wins and where it's vulnerable
- Identify company-specific and industry-wide risks, including customer concentration, platform consolidation bets, and cybersecurity spending cycles
Step 1: Understand the business model before anything else
You can't analyze PANW if you don't understand what the company sells and who buys it. Palo Alto Networks operates across three main platforms: Strata (network security), Prisma Cloud (cloud security), and Cortex (security operations and automation). Each serves a different buyer need, but the company has been pushing hard to get customers onto multiple platforms simultaneously.
The business model has shifted meaningfully over the past several years. Palo Alto Networks moved from selling hardware firewalls with attached software licenses to a subscription-and-services-heavy model. This matters because recurring revenue is generally valued more highly by the market than one-time product revenue. When you're researching this stock, pay attention to how much of total revenue comes from subscriptions versus product sales, and whether that mix is trending in the right direction.
Annual Recurring Revenue (ARR): The total annualized value of active subscription contracts at a given point in time. For software and cybersecurity companies, ARR growth is often a better indicator of business momentum than total reported revenue.
Check the company's investor relations page and recent earnings transcripts for commentary on their "platformization" strategy. Management has been offering free access to certain products to entice customers into broader platform deals. That's a bold bet. You need to decide whether it's a smart land-and-expand move or a margin-compressing gamble. The PANW research page on Rallies.ai can help you pull together key financial data to track these shifts.
How to analyze PANW financials step by step
Once you have the business model clear, open up the income statement, balance sheet, and cash flow statement. Here's the order that works best for a company like Palo Alto Networks:
- Revenue growth rate: Look at year-over-year revenue growth across several periods. Is it accelerating, decelerating, or holding steady? For a company priced like a high-growth name, decelerating growth is a red flag worth investigating.
- Gross margins: Software and subscription businesses tend to have high gross margins (often 70% or above). Check whether Palo Alto's gross margins have been expanding as the revenue mix shifts toward subscriptions.
- Operating margins and profitability: Many cybersecurity companies spend heavily on sales and R&D. Look at whether operating margins are improving over time, which would suggest the company is gaining scale efficiencies.
- Free cash flow: This is a big one. Palo Alto Networks has historically generated strong free cash flow even when GAAP net income looked less impressive. Compare free cash flow to net income, and understand why they diverge (usually stock-based compensation is the main culprit).
- Balance sheet health: Check cash and equivalents versus total debt. A company with more cash than debt has a financial cushion. Also look at deferred revenue, which represents money customers have already paid for services not yet delivered. Growing deferred revenue is typically a positive sign.
Stock-Based Compensation (SBC): Non-cash expense where companies pay employees with equity instead of cash. It doesn't reduce cash flow, but it dilutes existing shareholders. When free cash flow looks much better than net income, heavy SBC is often the reason. Factor it into your analysis.
Don't just look at one quarter or one year. Pull at least three to five years of data to see trends. A single period can be misleading. The Rallies AI Research Assistant can walk you through these financial metrics in plain language if the 10-K filings feel dense.
What valuation metrics matter most for PANW?
Valuation is where most people get tripped up with high-growth tech stocks. Traditional metrics like price-to-earnings (P/E) ratios can look absurdly high for companies reinvesting heavily in growth. That doesn't automatically mean the stock is overvalued, but it does mean you need to use the right tools.
For a company like Palo Alto Networks, consider these valuation approaches:
- Price-to-Sales (P/S): Compare PANW's P/S ratio to other cybersecurity companies with similar growth rates. If PANW trades at 15x sales while a competitor with comparable growth trades at 10x, ask why. There might be a good reason, or it might signal overvaluation.
- Price-to-Free Cash Flow: Because PANW generates meaningful free cash flow, this metric can be more useful than P/E. Look at the ratio relative to peers and relative to its own historical range.
- EV/Revenue and EV/EBITDA: Enterprise value-based metrics account for debt and cash on the balance sheet. They give you a cleaner comparison across companies with different capital structures.
- Rule of 40: This is a quick-and-dirty benchmark for software companies. Add the revenue growth rate (as a percentage) to the free cash flow margin. If the total exceeds 40, the company is generally considered to be balancing growth and profitability well.
Rule of 40: A benchmark where a software company's revenue growth rate plus its profit margin (often free cash flow margin) should equal or exceed 40%. A company growing revenue at 25% with a 20% free cash flow margin scores a 45, which is solid. It's a heuristic, not a law.
Here's the thing about valuation: it only tells you what the market is pricing in right now relative to fundamentals. It doesn't tell you whether those fundamentals will improve or deteriorate. Use valuation as one data point, not the whole story.
How does Palo Alto Networks stack up against competitors?
Competitive analysis is where your PANW due diligence gets interesting. Cybersecurity is a crowded market with several well-funded, fast-growing companies. Palo Alto Networks competes differently depending on the segment:
- Network security: Fortinet (FTNT) is the primary competitor here. Fortinet has built its own custom chips (ASICs) for firewalls, which gives it a cost and performance advantage in certain use cases. Palo Alto competes with software-defined approaches and broader platform integration.
- Cloud security: Zscaler (ZS) and CrowdStrike (CRWD) overlap here. Zscaler focuses on zero-trust network access, while CrowdStrike dominates in endpoint detection and response. Palo Alto's Prisma Cloud tries to cover workload protection, code security, and cloud posture management in one product.
- Security operations: CrowdStrike's Falcon platform and Palo Alto's Cortex XSIAM compete directly for security operations center (SOC) automation budgets. This is one of the fastest-growing parts of the market.
When you compare these companies, look at a few things beyond just revenue size. Who is growing faster? Who has better net retention rates (meaning existing customers spend more over time)? Who has the stickiest product, where switching costs would make it painful for a customer to leave? You can use the Rallies.ai Vibe Screener to pull up cybersecurity stocks side by side and compare key metrics quickly.
Palo Alto's main competitive argument is platformization. They want to be the single vendor that handles most of a company's security needs. If that strategy works, it creates massive switching costs and pricing power. If it doesn't, the company will have given away products for free without locking in long-term revenue. That tension is worth thinking about carefully.
What are the biggest risks when researching Palo Alto Networks stock?
Every stock has risks. The goal isn't to find a risk-free investment (those don't exist), but to identify the risks clearly and decide whether you're being compensated for taking them. Here are the ones that matter most for PANW:
- Valuation compression: High-growth stocks that trade at premium multiples can lose significant value if growth slows even slightly. If PANW's revenue growth decelerates more than the market expects, the stock could reprice sharply downward.
- Platform consolidation risk: The bet on giving away products to win platform deals is not guaranteed to work. If customers take the free products but don't expand into paid tiers, margins could suffer without a corresponding revenue payoff.
- Competition intensifying: CrowdStrike, Fortinet, and Zscaler are all investing aggressively. Any one of them could leapfrog Palo Alto in a specific segment. And new entrants (including AI-native security startups) could disrupt established players.
- Customer concentration and spending cycles: If a handful of large enterprise customers represent a disproportionate share of revenue, losing one or two could hurt. Also, cybersecurity budgets can tighten during broad economic slowdowns, even though security is often considered non-discretionary.
- Stock-based compensation dilution: As mentioned earlier, heavy SBC can dilute shareholders over time. Track the share count. If it's growing meaningfully year over year, your ownership percentage is shrinking even if the stock price stays flat.
- Execution risk on acquisitions: Palo Alto Networks has grown partly through acquisitions. Integrating acquired products into a unified platform is difficult, and some acquisitions may not deliver the expected returns.
Write down each risk and estimate how likely it is and how severe the impact would be. That exercise forces you to think probabilistically rather than just reacting to headlines.
Putting your Palo Alto Networks research guide together
Now let's combine everything into a practical workflow. Here's the sequence for conducting thorough PANW due diligence:
- Read the business overview in the most recent 10-K filing. Focus on the description of products, revenue segments, and the company's stated strategy.
- Review three to five years of financial statements. Track revenue growth, margin expansion, free cash flow, and deferred revenue trends.
- Calculate valuation metrics and compare them to at least three direct competitors (CrowdStrike, Fortinet, Zscaler are good starting points).
- Listen to or read two to three recent earnings call transcripts. Pay attention to management's tone about growth drivers, competitive wins or losses, and forward guidance philosophy.
- Map the competitive landscape. Identify where PANW has an advantage and where it's at a disadvantage in each major product category.
- List all risks and assess probability and severity for each one.
- Decide on your thesis. After all this work, write one to two sentences explaining why you would or wouldn't own this stock. If you can't articulate it simply, you probably need to dig deeper.
This process works for any company, not just Palo Alto Networks. The specifics change, but the framework stays the same. If you want a faster way to pull together the data, the Rallies AI Research Assistant can summarize financials, competitive dynamics, and risk factors in one conversation.
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:
- Walk me through a complete due diligence framework for researching Palo Alto Networks (PANW) — what should I analyze about their business model, competitive position, financials, and key risks before deciding if this is a stock worth investing in?
- If I'm researching Palo Alto Networks for the first time, what's the step-by-step process? What should I look at first?
- Compare Palo Alto Networks' competitive position against CrowdStrike, Fortinet, and Zscaler across network security, cloud security, and security operations. Where does PANW have an edge, and where is it weakest?
Frequently asked questions
What's the first thing to look at in a PANW due diligence process?
Start with the business model. Understand what Palo Alto Networks sells, who its customers are, and how revenue breaks down between product sales and subscriptions. Without that foundation, financial metrics and valuation multiples won't mean much to you. The company's 10-K filing has a business overview section that covers this clearly.
How do I analyze PANW's valuation compared to other cybersecurity stocks?
Pull price-to-sales, price-to-free-cash-flow, and EV/revenue ratios for PANW and its closest competitors (CrowdStrike, Fortinet, Zscaler). Compare them side by side, but also account for differences in growth rates, margins, and business model mix. A higher multiple can be justified if the company is growing faster or generating more free cash flow per dollar of revenue.
What financial metrics matter most in a Palo Alto Networks research guide?
Revenue growth, gross margins, free cash flow, deferred revenue, and stock-based compensation as a percentage of revenue are the ones to prioritize. Free cash flow is especially important because it tends to diverge meaningfully from GAAP net income for software companies. Tracking deferred revenue gives you a forward-looking signal on demand.
Is Palo Alto Networks' platformization strategy a risk or an advantage?
It's both. If customers adopt multiple Palo Alto products, switching costs increase and the company gains pricing power over time. But the strategy involves giving away some products for free initially, which pressures near-term revenue and margins. Whether this pays off depends on conversion rates from free to paid tiers. Watch management's commentary on platform adoption metrics in earnings calls.
How often should I update my research on PANW?
At minimum, revisit your thesis after each quarterly earnings report. Pay attention to whether the trends you identified (revenue growth, margin expansion, competitive wins) are continuing or reversing. If something material changes in the competitive landscape or the company's strategy, that warrants a fresh look regardless of the earnings calendar.
Where can I find all the data I need for this research?
SEC filings (10-K and 10-Q) are your primary source for financials and risk factors. Earnings call transcripts give you management's perspective and analyst questions. For competitive comparisons and quick metric lookups, the PANW page on Rallies.ai pulls together key data points in one place. Industry reports from research firms can add context on market sizing and trends.
Bottom line
Learning how to research Palo Alto Networks stock comes down to following a structured process: business model first, then financials, valuation, competitive positioning, and risks. Each step builds on the previous one, and skipping ahead usually leads to incomplete conclusions. The framework outlined here works whether you're bullish, bearish, or undecided.
Do your own research, take your time, and remember that the goal is building a defensible thesis, not finding a perfect stock. For more step-by-step investment research frameworks, explore the Rallies.ai guides section.
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.