PANW
Palo Alto Networks, Inc.
Technology · Software - Infrastructure · United States · Stock
Score Breakdown
Scored for Safe Long-Term Investing profile
Sub-scores are 0–20 each; Model Score is weighted by your selected investment goal. How it works →
Why Ranked Here
- The composite score of 40.2/100 reflects a business with genuine strengths — solid revenue growth of +14.9% and an extraordinary interest coverage ratio of 414.3 — offset by a steep -56.0% decline in net income and a troubling swing to negative earnings in 2026Q3.
- The absence of any dividend and a zero sub-score on the Cybersecurity macro theme assignment both contributed structurally to keeping the composite score below the midpoint.
- The momentum factor was conflicted: while quarterly revenue accelerated to $3,002,000,000 in 2026Q3, the simultaneous collapse of net income and operating income into negative territory prevented a stronger momentum reading.
Why Not Higher
- The sharp -56.0% decline in net income and diluted EPS in FY2025, compounded by negative net income and operating income in 2026Q3, heavily penalized the growth and momentum factors and prevented a higher composite score.
- Structural zeroes in both the dividend and macro theme sub-scores, combined with a return on assets of only 4.8%, limited the ceiling of the overall rating despite the company's strong balance sheet.
Data Confidence
8 / 10
High — most data fields present
Why This Score
Grounded in figures from this company's SEC EDGAR filings — not a restatement of the score itself.
Revenue grew from FY2024's $8,027,500,000 to FY2025's $9,221,500,000, a gain of +14.9%. However, net income fell sharply from FY2024's $2,577,600,000 to FY2025's $1,133,900,000 (-56.0%), and diluted EPS declined from $3.64 in FY2024 to $1.60 in FY2025, also -56.0%.
The model rewarded the solid top-line expansion but heavily penalized the steep contraction in bottom-line profitability, resulting in a below-midpoint score that reflects the mixed growth picture.
In FY2025, Palo Alto Networks posted a net margin of 12.3%, an operating margin of 13.5%, and a return on assets of 4.8%.
The model recognized positive but moderate profitability metrics — margins above zero and a meaningful operating margin — while the relatively modest return on assets tempered the score to just above the midpoint.
In FY2025, the company's interest coverage ratio (operating income divided by interest expense) stood at 414.3, and total assets were $23,576,200,000.
An interest coverage ratio of 414.3 in FY2025 signals an exceptionally strong ability to service debt obligations, which the model rewarded with a high sub-score; the large total asset base further supports the elevated rating.
Quarterly revenue showed a dip from 2025Q4's $2,536,500,000 to 2026Q1's $2,474,000,000, then recovered to $2,594,000,000 in 2026Q2 and accelerated to $3,002,000,000 in 2026Q3. Net income and operating income, however, turned sharply negative in 2026Q3 at -$177,000,000 and -$183,000,000 respectively, after positive readings in the prior three quarters.
While the most recent quarter showed strong revenue acceleration, the simultaneous collapse of net income and operating income into negative territory in 2026Q3 created a conflicted signal that the model penalized, keeping the momentum score below the midpoint.
Palo Alto Networks does not currently pay a dividend; this is a genuine characteristic of the company, not a data limitation.
The model assigns a score of zero for this factor to companies with no dividend history, as income-oriented criteria cannot be satisfied without any distribution to shareholders.
Palo Alto Networks is assigned to the Cybersecurity macro theme.
Although the company carries a Cybersecurity theme assignment — a sector that can attract thematic scoring — this assignment did not translate into a positive sub-score under the model's current methodology.
Research Summary
AI-generated analysis reflects data and conditions as of the report date shown above. Verify any specific figures through primary sources before acting on this analysis.
Palo Alto Networks delivered solid top-line growth of +14.9% in FY2025, with revenue rising from $8,027,500,000 to $9,221,500,000, but net income fell sharply from $2,577,600,000 to $1,133,900,000 (-56.0%), creating a mixed fundamental picture. Profitability metrics remain positive — a 12.3% net margin and 13.5% operating margin — while the balance sheet is exceptionally strong, with an interest coverage ratio of 414.3 and total assets of $23,576,200,000. However, the most recent quarter (2026Q3) saw net income and operating income swing into negative territory at -$177,000,000 and -$183,000,000 respectively, even as quarterly revenue accelerated to $3,002,000,000, adding meaningful uncertainty to the near-term outlook. The absence of a dividend and no positive macro theme sub-score further weighed on the composite, resulting in a total model score of 40.2/100 and a Monitor Only label.
Plain English
Palo Alto Networks is growing its sales nicely, but its profits dropped dramatically last year and just turned negative in the most recent quarter, which makes the overall picture uncertain enough that the model flags it as something to watch rather than act on right now.
Bull Case vs. Bear Case
Bull Case
- Revenue has shown strong and accelerating momentum, climbing from $2,474,000,000 in 2026Q1 to $3,002,000,000 in 2026Q3, suggesting continued top-line demand for the company's cybersecurity offerings.
- The balance sheet is exceptionally robust, with an interest coverage ratio of 414.3 in FY2025 and total assets of $23,576,200,000, indicating very low financial distress risk.
- Profitability metrics remain in positive territory, with a net margin of 12.3% and an operating margin of 13.5% in FY2025, reflecting a business that is still generating meaningful earnings on its revenue base.
Bear Case
- Net income collapsed by -56.0% year-over-year in FY2025, falling from $2,577,600,000 to $1,133,900,000, and diluted EPS dropped from $3.64 to $1.60 over the same period, signaling a significant deterioration in bottom-line performance.
- In 2026Q3, both net income and operating income turned sharply negative at -$177,000,000 and -$183,000,000 respectively, even as revenue hit a new high, raising concerns about cost pressures or one-time charges undermining profitability.
- The company pays no dividend and received no positive sub-score from its Cybersecurity macro theme assignment, both of which weighed on the composite model score.
What Could Change the Picture
Bullish Triggers
- A sustained return to positive and growing net income and operating income in future quarters — reversing the 2026Q3 swing to -$177,000,000 and -$183,000,000 — would significantly improve the momentum and growth signals.
- If the strong quarterly revenue trajectory (reaching $3,002,000,000 in 2026Q3) translates into recovering margins, the profitability picture could meaningfully strengthen from its current 12.3% net margin.
Bearish Triggers
- If the 2026Q3 losses in net income (-$177,000,000) and operating income (-$183,000,000) persist or deepen in subsequent quarters, the profitability and momentum factors would deteriorate further.
- A continued divergence between accelerating revenue and collapsing earnings — as seen between 2026Q2 and 2026Q3 — would suggest structural cost issues that could erode the currently positive operating and net margins.
Risk Profile
Medium RiskThe company's financial health appears very strong, with an interest coverage ratio of 414.3 in FY2025 and a large total asset base of $23,576,200,000, suggesting minimal near-term debt distress. However, the momentum picture carries meaningful risk, as net income and operating income both turned sharply negative in 2026Q3 at -$177,000,000 and -$183,000,000 respectively, creating uncertainty about whether the profitability deterioration is temporary or structural.
This report is for educational and research purposes only. It does not constitute financial, investment, legal, or tax advice — always conduct your own due diligence before making investment decisions.