Why Palo Alto Networks Stock Is Sinking Today

Key Points

• Palo Alto Networks stock climbed to a record high today before getting hit with selling pressures connected to acquisition news.

• The cybersecurity specialize is reportedly in the late stages of acquiring CyberArk Software.

• While Palo Alto stock is pulling back today, buying CyberArk could actually be good for long-term shareholders.

• 10 stocks we like better than Palo Alto Networks ›

Despite hitting an all-time high earlier in today's session, Palo Alto Networks (NASDAQ: PANW) stock is now in the red Tuesday. The cybersecurity company's share price was down 4.3% as of 2:30 p.m. ET.

Palo Alto Networks stock hit a new record high early in today's trading, but the company's share price is now seeing a significant pullback in conjunction with news that a major acquisition could be on the horizon. According to a recent report from The Wall Street Journal, Palo Alto is on track to acquire CyberArk Software and could pay a big valuation premium in the deal.

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Palo Alto sinks on big CyberArk buyout news

Palo Alto is reportedly nearing the end of negotiations to acquire CyberArk -- an Israel-based cybersecurity company specializing in identity management solutions. While that's probably not bad news for long-term investors, it's reasonable to expect that Palo Alto will wind up paying a premium to buy out CyberArk if a deal materializes. Given the potential for new stock to be issued in order to fund the deal, Palo Alto's share price could be seeing a pullback today due to concerns about stock dilution.

What's next for Palo Alto Networks?

For long-term investors, Palo Alto Networks buying CyberArk could actually be a beneficial development. The cybersecurity industry looks poised to see significant consolidation trends over the next decade, and the outlook on that front is connected to the increasingly important role that artificial intelligence (AI) will play in digital protections. While valuations for acquisitions will continue to be a meaningful concern for shareholders, Palo Alto making big buyout plays could significantly strengthen the company over the long haul.

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