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The escalating reliance of enterprises on the Internet for everyday operations has transformed the digital landscape into a perilous arena rife with cyber threats. Hackers are constantly looking for weaknesses to exploit, particularly with the emergence of artificial intelligence (AI) and advanced threats like synthetic identity fraud, cryptojacking, deep fakes, and many more.
Recent breaches - such as the significant data theft affecting millions of Comcast’s (CMCSA) Xfinity customers and the forced system shutdown at American Water Works (AWK) - reveal that even major corporations and key utilities are not immune to attacks, emphasizing the critical need for strong defenses in this rapidly changing threat environment.
The cybersecurity market is positioned for long-term expansion amid rising cyber threats, solidifying its role as the tech sector's defensive niche. One top growth stock is Zscaler, Inc. (ZS), a leader in cloud-based security solutions. Notably, Citi thinks now could mark a key entry point, with the brokerage recently reaffirming a "Buy" rating and placing ZS on a “90-day positive catalyst watch.”
With Wall Street eyeing significant upside potential, let’s dive deeper into this cybersecurity stock.
About Zscaler Stock
With a market cap of around $29.5 billion, San Jose-based Zscaler, Inc. (ZS) is a pioneer in cybersecurity innovation. At the heart of its success is the renowned Zero Trust Exchange platform, hailed as the world's leading cloud security solution. With this cutting-edge technology, Zscaler safeguards thousands of customers from the ever-looming threats of cyberattacks and data breaches.
ZS stock has underperformed in 2024, and is down 10% on a year-to-date basis. The stock is down about 23.5% from its February peak of $259.61.
However, this could be a prime opportunity to pick up shares of this growth stock on the dip. ZS is now trading at 11.4 times forward sales - a steep 52% discount to its historical average valuation.
Zscaler Dips on Soft Guidance
Shares of the cybersecurity stock plunged 18.7% on Sept. 4 after its fiscal Q4 earnings release, despite beating Wall Street’s estimates. Revenue soared 30% year over year to $592.9 million, with billings up 27% to $910.8 million and deferred revenue up 32% to $1.9 billion. Adjusted EPS rose 37.5% to $0.88.
Zscaler’s free cash flow surged to $136.3 million, boosting margins to 23% from 22% in the year-ago quarter. Cash reserves are now at $2.4 billion, showcasing Zscaler’s financial strength.
The post-earnings selloff stemmed from Zscaler’s softer-than-expected guidance for fiscal 2025. The company expects billings growth to slow between 19% and 20%, down from 27% in 2024. This deceleration is projected to compress profit margins, with operating margins forecasted at 20.6%, falling short of market expectations.
Zscaler projected fiscal Q1 2025 adjusted EPS between $0.62 and $0.63, and full-year EPS between $2.81 and $2.87. The forecast fell considerably short of Wall Street’s expectations.
Management cited its aggressive investments in AI and cloud infrastructure, which CEO Jay Chaudhry stressed are vital for long-term growth - even if they pressure profitability in the near term.
In particular, Zscaler is focusing on enhancing its AI-driven analytics, which deepens security insights and boosts upselling opportunities. Its recent acquisitions of Avalor and Airgap are aimed at reinforcing AI and security capabilities, further solidifying its position in the cybersecurity landscape.
The company’s leadership in the zero-trust security market, securing over 8,700 customers and protecting 50 million users, continues to grow. Its Zero Trust Exchange platform is fueling strong customer adoption, supporting enterprises' shift to hybrid cloud. With over half a trillion daily transactions and $2.5 billion in ARR, Zscaler is poised for continued dominance in the cybersecurity ecosystem.
Additionally, Zscaler’s federal momentum is surging, securing 13 of 15 U.S. cabinet-level agencies. As cyberattacks rise, Zscaler's federal wins and expanding public sector presence fuel its long-term growth in the cybersecurity market.
Analysts tracking Zscaler project the company’s GAAP loss to reach $0.95 per share in fiscal 2025, before narrowing to $0.75 per share in fiscal 2026.
What Do Analysts Expect for Zscaler Stock?
Last week, Citi put ZS stock on a 90-day positive catalyst watch, while backing a “Buy” rating and adjusting the price target down to $230 from $240.
In a note to clients, analyst Fatima Boolani wrote that concerns about the weak guidance seemed overdone, and said ZScaler looks compelling in light of the overly negative investor expectations and the stock’s bargain valuation.
ZS stock has a consensus “Moderate Buy” rating overall. Of the 39 analysts covering the stock, 26 advise a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining 12 recommend a “Hold.”
The average analyst price target of $217.84 indicates an expected upside potential of 10% from the current price levels. The Street-high price target of $270 suggests that ZS stock could rally as much as 36.4%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
