Zscaler (ZS) Stock Sinks As Market Gains: Here's Why

Zscaler (ZS) shares recently underperformed the broader market and its sector, declining 2.44% in the last session and 3.47% over the past month. While the cloud security provider is projected to report a 19.11% revenue increase to $706.19 million for its September 2025 earnings, consensus estimates anticipate a 9.09% year-over-year decline in EPS to $0.8. The stock currently trades at a premium valuation, with a Forward P/E of 77.89 and a PEG ratio of 5.4, significantly above industry averages, and holds a Zacks #3 (Hold) rank.

Analysis

Zscaler (ZS) is exhibiting clear signs of underperformance and valuation risk. The stock's recent -2.44% daily change and -3.47% monthly decline lag both the S&P 500 and the broader Computer and Technology sector, which gained 6.37% over the same month. While consensus estimates for the upcoming quarter project strong top-line growth, with revenue expected to rise 19.11% year-over-year to $706.19 million, this is overshadowed by a forecast 9.09% decline in earnings per share to $0.80. The full-year outlook is more concerning, with projections for a -0.31% dip in EPS and flat (0%) revenue growth, suggesting a significant potential deceleration. This weakening growth profile clashes with the stock's premium valuation; its Forward P/E ratio of 77.89 and PEG ratio of 5.4 are substantially higher than the security industry averages of 63.15 and 2.63, respectively. The stagnant consensus EPS estimate over the past month and the neutral Zacks Rank of #3 (Hold) further indicate a lack of positive catalysts, reinforcing a cautious outlook despite the company's position in a relatively strong industry.

Key Decisions for Investors

• Investors should scrutinize the stock's premium valuation, as the high Forward P/E and PEG ratios appear disconnected from the deteriorating earnings outlook and projected flat full-year revenue growth.
• Monitor the upcoming earnings report on September 2, 2025, closely for management's explanation of the divergence between projected quarterly revenue growth and the year-over-year decline in EPS, which is a key indicator of margin pressure.
• Given the stock's recent underperformance and the absence of positive analyst estimate revisions, it may be prudent to await a fundamental catalyst or a more attractive valuation before initiating or increasing a position.