Investors Heavily Search Zscaler, Inc. (ZS): Here is What You Need to Know

Zscaler (ZS) has been heavily searched by investors recently, with shares up 22.6% over the past month, significantly outperforming the S&P 500. While the current quarter's EPS is projected to decline 9.1% year-over-year, consensus estimates have increased substantially over the last 30 days, and revenue is expected to grow by 19.1% this quarter and approximately 20-23% for the current and next fiscal years; however, Zscaler's Zacks Rank is currently a Hold, suggesting it may perform in line with the broader market in the near term, and its valuation grade is an F, indicating it is trading at a premium.

Analysis

Zscaler (ZS) has recently attracted significant investor attention, evidenced by its stock's +22.6% return over the past month, markedly outpacing the S&P 500's +3.6% and the Zacks Security industry's +5.1% gains. Despite current quarter earnings per share (EPS) being forecast to decline 9.1% year-over-year to $0.80, and current fiscal year EPS projected at $3.18 (a -0.3% YoY change), consensus estimates for these periods have seen substantial positive revisions in the last 30 days of +46% and +67.4% respectively, indicating improving analyst outlook from previous lows. A return to growth is anticipated for the next fiscal year, with consensus EPS estimated at $3.56, a +12.1% year-over-year increase. This earnings trajectory is supported by robust revenue growth forecasts: +19.1% YoY for the current quarter to $706.34 million, and +22.7% and +19.5% for the current and next fiscal years, respectively. Zscaler has a consistent history of exceeding market expectations, having beaten consensus EPS and revenue estimates in each of the trailing four quarters; its most recent reported quarter showed revenue of $678.03 million (+22.6% YoY) and EPS of $0.84, which, while a +12% surprise, was down from $0.88 in the prior year. However, the stock's valuation is a key consideration, as its Zacks Value Style Score of F signals it trades at a premium, and its Zacks Rank #3 (Hold) suggests near-term performance may align with the broader market.

Key Decisions for Investors

• Given Zscaler's strong recent share price momentum and significant positive revisions to earnings estimates, investors should note the improving sentiment but remain cognizant of the projected near-term flat to negative year-over-year EPS and the stock's premium valuation.
• Current holders might consider maintaining positions while closely monitoring upcoming earnings for sustained high revenue growth and a clearer path to improved profitability to justify the F-grade valuation.
• Prospective investors should exercise caution due to the premium valuation and the Zacks #3 (Hold) rating, suggesting that a more favorable entry point might be warranted despite the positive long-term growth narrative.