Here’s What You Should Understand About Zscaler, Inc. (ZS) Besides Its Popularity

Zscaler: Recent Trends and Key Factors to Watch

Zscaler (ZS) has recently attracted significant attention among investors, ranking as one of the most searched stocks on Zacks.com. If you are considering this stock, it’s important to examine several critical elements that could impact its performance in the near term.

Stock Performance Overview

In the last month, Zscaler’s share price has dropped by 26.5%, a much steeper decline compared to the S&P 500’s 1.3% decrease. The broader security sector, which includes Zscaler, also experienced a notable loss of 18.9% during this period. The main question for investors is: where might Zscaler’s stock be headed next?

While news headlines and speculation can cause short-term price swings, long-term investment decisions are ultimately shaped by fundamental business factors.

Changes in Earnings Projections

At Zacks, the primary focus is on shifts in earnings forecasts, as these are seen as the most reliable indicators of a stock’s intrinsic value. The present value of a company’s anticipated future earnings is what drives its fair market price.

We closely monitor how analysts update their earnings estimates in response to new business developments. When these estimates rise, the perceived value of the stock increases, often leading to higher demand and price appreciation. Research consistently shows a strong link between changes in earnings forecasts and short-term stock price movements.

• For the current quarter, Zscaler is projected to earn $0.94 per share, up 11.9% from the same period last year. This estimate has remained steady over the past month.
• The consensus for the current fiscal year is $3.84 per share, reflecting a 17.1% increase year-over-year, with a remarkable 826.5% revision in the last 30 days.
• Looking ahead to the next fiscal year, analysts expect earnings of $4.39 per share, a 14.4% rise from the previous year, with a modest 0.3% upward revision in the past month.

The Zacks Rank, a proprietary rating system with a proven track record, leverages these earnings estimate revisions to provide a clearer outlook on a stock’s likely direction. Due to recent significant changes in consensus estimates and other related factors, Zscaler currently holds a Zacks Rank #5 (Strong Sell).

The following chart illustrates the trend in Zscaler’s forward 12-month consensus EPS estimate:

Revenue Outlook

While earnings growth is a vital sign of a company’s financial strength, sustained revenue growth is essential for long-term profitability. Without increasing sales, it’s difficult for any business to maintain earnings growth over time.

• For the current quarter, Zscaler’s revenue is expected to reach $833.74 million, a 23% increase from the previous year.
• Full-year sales estimates stand at $3.31 billion for the current fiscal year (up 23.7%) and $3.96 billion for the next fiscal year (up 19.7%).

Recent Earnings and Surprises

In its most recent quarter, Zscaler reported revenue of $815.75 million, marking a 25.9% year-over-year increase. Earnings per share came in at $1.01, compared to $0.78 in the same period last year.

Both revenue and earnings exceeded analyst expectations, with revenue beating estimates by 2.22% and EPS surpassing forecasts by 13.48%. Zscaler has consistently outperformed consensus estimates for both earnings and revenue over the past four quarters.

Valuation Considerations

Assessing a stock’s valuation is crucial for making informed investment choices. Determining whether the current share price accurately reflects the company’s true worth and growth prospects is key to predicting future performance.

Comparing valuation ratios like price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) against both historical averages and industry peers helps investors gauge whether a stock is undervalued, fairly valued, or overpriced.

The Zacks Value Style Score, which evaluates stocks on a scale from A to F using a mix of traditional and alternative valuation metrics, helps identify relative value. Zscaler currently receives an F, suggesting it is trading at a premium compared to its competitors.

Conclusion

The analysis above, along with additional resources available on Zacks.com, can help you decide whether to pay attention to the current market buzz around Zscaler. However, its Zacks Rank #5 rating indicates the stock may lag behind the broader market in the short term.