Last Updated: 18 Sep 2024
Executive Summary
Zscaler Inc. (ZS) is a leading provider of cloud-based security solutions for businesses. With a market capitalization of $26.2 billion, the company has experienced strong revenue growth in recent quarters, driven by increasing demand for its cloud security platform. However, the company is currently unprofitable and has a high forward price-to-earnings ratio, indicating that investors are pricing in significant growth expectations.
Company Overview
Zscaler provides a comprehensive suite of cloud security services, including web security, firewall, intrusion detection, and data loss prevention. The company's platform is delivered as a service, eliminating the need for businesses to purchase and maintain on-premises security hardware. Zscaler has a global customer base of over 4,500 organizations, including many Fortune 500 companies.
Fundamental Analysis
Revenue: Zscaler's revenue has grown rapidly in recent years, increasing by 30.3% year-over-year to $2.17 billion in the latest quarter. The company's growth is being driven by increasing demand for its cloud security platform, as businesses seek to protect their data and applications from cyber threats.
Profitability: Zscaler is currently unprofitable, with a negative EBITDA of $90.2 million in the latest quarter. The company's operating expenses have been increasing rapidly, outpacing revenue growth. Zscaler expects to become profitable in the future, but it is unclear when this will occur.
Valuation: Zscaler is trading at a forward price-to-earnings ratio of 59.17, which is significantly higher than the industry average. This indicates that investors are pricing in significant growth expectations for the company.
Technical Analysis
Price Action: Zscaler's stock price has been trending lower in recent months, breaking below its 50-day and 200-day moving averages. The stock is currently trading at $170.32, which is below its 52-week low of $146.59.
Technical Indicators: The relative strength index (RSI) for Zscaler is currently at 32.5, indicating that the stock is oversold. The moving average convergence divergence (MACD) is also bearish, with the MACD line below the signal line.
Short Term Outlook
The technical analysis suggests that Zscaler's stock price could continue to decline in the short term. The stock is currently oversold, but the MACD is bearish, indicating that there is still downward momentum. Investors should be cautious about buying Zscaler's stock at current levels.
Long Term Outlook
The long-term outlook for Zscaler is more positive. The company is a leader in the cloud security market, and its platform is in high demand. Zscaler is expected to continue to grow revenue rapidly in the coming years. However, the company's profitability is a concern, and investors should monitor this closely.
Analyst Recommendations
The majority of analysts covering Zscaler have a buy rating on the stock. The average analyst target price is $219.37, which implies a potential upside of 28.7% from current levels. However, some analysts have a more cautious view of the stock, citing concerns about profitability and valuation.
