This is a crucial time for security provider Palo Alto Networks (PANW) . The company has come under scrutiny by analysts that have lost conviction on the stock, driven by concerns that range from slower revenue and billings growth to margin pressures. Shares have lagged the broad equities market over the past three months by nearly ten percentage points.

But on Sept. 4, the tech company will have another chance to instill confidence in its shareholders when it reports fiscal fourth quarter earnings after the closing bell and also speaks with analysts at an event in New York City. 

Tough Comps and Pressured Margins

In what pertains to recent performance, Wall Street is looking for a top-line increase of nearly 22% that, if reached, would mark a multi-year trough in the growth rate. The bar was set low by the management team last quarter, when it provided modest guidance that reflects tough 2018 revenue comps of nearly 30%.

Also explaining the expected slowdown in the growth pace is Palo Alto Networks' ongoing business model transition from longer-term contracts to subscriptions. With the company's increased focus on cloud security and automation, the mix of SaaS revenues should continue to increase. While the trend bodes ill for near-term top line growth, it should contribute with more predictable sales and improving margins going forward.

Helping to boost the top line will be revenue contribution from the new acquisitions. Palo Alto Networks has gone on a shopping spree over the past couple of years as part of the company's strategy to diversify away from the legacy firewall business and into offerings like DNS security add-ons and next-generation endpoint detection and response.

Palo Alto Networks' Acquisitions Since 2017
Palo Alto Networks' Acquisitions Since 2017

The drawback of Palo Alto Networks' aggressive M&A strategy is that operating margins are likely to suffer once again, at least in the immediate term, due to higher integration costs. The expected profitability pressures partly justify guided EPS of $1.41 that, if achieved, would land only 11% above year-ago levels. The better news may come in the form of slightly improved gross margin, driven by the SaaS model transition and gains of scale. 

Beyond the Results of the Quarter

Perhaps more important than Palo Alto Networks' financial performance in the most recent quarter will be the outlook for the next 12 months. As the fiscal year comes to a close, the company is preparing an analyst event following the release of its earnings report.

During the meeting, the management team will probably reinforce its longer-term strategy that is grounded on securing the enterprise and the cloud, and further developing AI applications. The company is also likely to address the moves within the executive team, an ongoing "musical chairs" game that seems to be worrying analysts and investors lately. Lastly, but certainly no less importantly, guidance for fiscal 2020 will also be a key item of discussion. Currently, both revenue and EPS consensus estimates for the full year are set at a modest mid- to high-teen growth rate.

Right Trends, Good Price

As the focus of attention turns to the new fiscal year, this could be a pivotal moment for Palo Alto Networks and its stock. The earnings results and 2020 outlook could either propel shares back towards the all-time highs of $250 reached in early May 2019 or extend the stock's lack of momentum observed in August.

Regardless of short-term price behavior, I continue to find Palo Alto Networks a compelling GARP (growth at reasonable price) stock to buy and hold. Not only is the company a leader in cyber-security undergoing a welcoming transition to SaaS and cloud services, the stock continues to trade at a current-year P/E of 32 that is about as low as the valuation multiple has ever been.

Palo Alto Networks is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells PANW? Learn more now.

The author has no positions in any stocks mentioned in this article.