QS Research · Michael Burry's Scion Capital analyst template · 2006
Palo Alto Networks Inc (PANW)
As of 2026-11-08 · 13/15 boxes filled from SEC filings and market data
Conclusion: SHORT
Conviction medium · base case -52% · downside -59% · upside +13%
The market is still paying 22.09x EV/Sales [N25] and 836.2x P/E [N29] for a business whose FY Jul 2026 GAAP operating income fell to $695.0M from $1.24B while revenue rose to $11.48B [S24], and whose FY2027 guide decelerates to 23%-24% revenue growth from Q4 FY2026's 34% [S99]. Cash generation is real, with operating cash flow of $4.55B and free cash flow of $4.11B [N17,N19], but the 1.6% FCF yield [N30] is too thin for the risk. Using the same FY Jul 2026 revenue base of $11.48B [N11] and $3.07B of cash and short-term investments [N21], 10.53x EV/Sales gives $124.0B equity (-52% versus $256.72B market cap [N9]), 9.01x gives $106.5B (-59%), and 25x gives $290.1B (+13%). This is a short: base -52%, downside -59%, upside +13%.
Key numbers
- Share price: $313.84
- Market cap: $256.72B
- Latest financial period: FY Jul 2026 to Jul 31, 2026
- Revenue (FY Jul 2026): $11.48B
- EV / EBITDA (FY Jul 2026): 163.6x
- P/E (FY Jul 2026): 836.2x
- Price / book: 9.34x
The 15 boxes
- ✓ 1. Long-form business notes
PANW now sells itself as three consolidated platforms — Network & AI Security (NGFWs, Prisma SASE, CDSS add-ons, Prisma AIRS), Cortex (XSIAM/XDR/Cloud plus Chronosphere observability) and Idira identity security — versus the FY2021 ten-K's five loose areas (zero trust network security, cloud, SASE, security analytics/automation, Unit 42). Revenue compound-growth is intact and secular: $4.26B in FY2021 to $11.48B in FY2026 with gross profit $2.98B to $8.08B. But FY2026 operating income fell to $695.0M from $1.24B in FY2025 while revenue rose, and intangible amortization jumped to $640.0M from $166.0M, so the headline earnings decline must be read against that step-up. Cash generation kept growing (operating cash flow $4.55B FY2026 vs $3.72B FY2025) and buybacks restarted at $1.00B after zero in FY2025.
- ✓ 2. Competitive advantage
The sources show a broad, well-resourced competitive set and no demonstrated durable moat: PANW's 10-K claims favorable features, integration and low total cost of ownership, but also cites rivals with greater resources and new hyperscaler/AI-native competition. FY2026 gross profit was $8.08B and operating cash flow $4.55B, but operating income fell to $695.0M from $1.24B in FY2025 while revenue rose to $11.48B from $9.22B. Subscription and support was 80% of FY2026 revenue, yet customers have no renewal obligation and two distributors were 30% of FY2026 revenue.
- ✓ 3. 10-Q takeaways
Q3 FY2026 (quarter ended Apr 30 2026) showed 31% revenue growth to $3.00B and 60% NGS ARR growth to $8.1B, but GAAP margins compressed: gross margin 67.6% and an operating loss of $183M versus operating income of $219M a year earlier, while non-GAAP operating income was $814M. Cash generation was strong—Q3 operating cash flow $871M and adjusted free cash flow $910M—and management guided Q4 FY2026 revenue to $3.345–$3.355B and FY2026 revenue to $11.415–$11.425B. The 10-Q also flags acquisition-driven cost increases and CyberArk-related incremental risks.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ✓ 11. Impression of the shareholder letter
Filled; members read this box.
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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