Is Palo Alto Stock a Buy After Issuing Robust Outlook?

After an initial after-hours pop in its stock following its fiscal third-quarter earnings report after the bell on June 2, shares of Palo Alto Networks (NASDAQ: PANW) sank in regular trading. However, the stock has still gained more than 50% year to date.

Let's dig into the cybersecurity company's results and prospects to see if the dip is a buying opportunity.

Palo Alto reported strong revenue growth in Q3

Palo Alto's platformization strategy (selling its solutions as one of three cybersecurity platforms instead of as point solutions) and recent acquisitions helped fuel strong growth in fiscal Q3. The company added 110 net new platformations in the quarter, bringing the total to 2,280, while it said its integration of CyberArk is ahead of schedule.

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For Palo Alto's fiscal 2026 Q3, which ended April 30, revenue soared 31% year over year to $3 billion, which was above its forecast for revenue of between $2.941 billion and $2.945 billion. Its recent acquisitions of CyberArk and Chronosphere contributed $388 million in revenue during the quarter.

Service revenue jumped by 31% to $2.41 billion, while product revenue also rose by 31% to $594 million, led by growth in software firewalls, Prisma AIRS, and SD-WAN (software-defined wide area network). It said hardware, which is about 10% of its total revenue, had its strongest quarter in a decade.

Next-generation security yet again powered Palo Alto's growth, with the segment's annual recurring revenue (ARR) soaring by 60% year over year, or 28% excluding acquisitions, to $8.1 billion. CyberArk and Chronosphere contributed $1.6 billion in ARR and are both exceeding expectations.

Its largest next-generation security solution is SASE (secure access service edge), which saw its annual recurring revenue (ARR) soar about 40% to more than $1.6 billion. XSIAM ARR, meanwhile, doubled to over $600 million, while Prisma AIRS saw its customer count triple quarter over quarter.

Adjusted earnings per share (EPS) rose by 6% year over year to $0.85, which was ahead of its forecast of $0.78 to $0.80.

Palo Alto projected fiscal Q4 revenue to grow by 32% to between $3.345 billion and $3.355 billion, with adjusted EPS of between $0.96 and $0.98.

Is Palo Alto stock a buy on the dip?

Palo Alto is starting to see nice momentum as its platformization and acquisition strategy pay off. It would not be surprising to see the company continue to roll up the space to add more modules to its platforms to help drive growth.

While the company is starting to hit its stride, the stock has doubled in just a few months, taking its valuation up to a forward price-to-sales ratio (P/S) of 17 times fiscal 2027 estimates and a forward price-to-earnings ratio (P/E) of 71 times 2027 estimates. While the stock was attractively valued earlier this year, that is no longer the case, and I'd move to the sidelines.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.