JMP maintains Zscaler stock with $310 target amid growth

JMP Securities reiterated a Market Outperform rating on Zscaler (ZS) with a $310 price target, citing the company's strong leadership, Zero Trust platform, and consistent growth even in a challenging economic climate. Zscaler's Q3 2025 fiscal results showed a 23% revenue increase and an 18% free cash flow margin at over $2 billion ARR, with billings up 24.9% year-over-year; several firms raised their price targets in response, though InvestingPro data suggests the stock may be trading above its fair value.

Analysis

JMP Securities has reaffirmed its Market Outperform rating on Zscaler (ZS) with a $310 price target, highlighting the stock's substantial year-to-date appreciation of over 39% from its current trading price around $251.11. This positive outlook is underpinned by Zscaler's consistent performance, attributed to its experienced leadership, including CEO Mr. Chaudhry, and the strategic importance of its Zero Trust security platform, which necessitates C-level executive engagement. The company reported strong fiscal third-quarter 2025 results, including a 23% revenue increase and an 18% free cash flow margin at an Annual Recurring Revenue (ARR) scale exceeding $2 billion, with ambitions to reach $5 billion ARR. Billings for Q3 FY2025 grew 24.9% year-over-year to $784.5 million. InvestingPro data corroborates this strength with a 77.86% gross profit margin and 27.77% overall revenue growth. Zscaler's market leadership is further evidenced by its platform monitoring over half a trillion transactions daily and significant new client acquisitions, such as a seven-figure deal with a Fortune 100 beverage company. In response to these developments, several other firms, including Stifel (PT $295), BTIG (PT $298), Evercore ISI (PT $290), and BofA Securities (PT $285), have raised their price targets, citing Zscaler's robust go-to-market strategy, sales productivity, and new product innovations. Morgan Stanley also increased its target to $280 but maintained an Equalweight rating. Despite this widespread optimism and strategic moves like the acquisition of Red Canary, InvestingPro analysis suggests that Zscaler's stock might be trading above its calculated Fair Value, indicating a potential valuation concern.

Key Decisions for Investors

• Given Zscaler's strong operational performance, impressive growth metrics, and positive analyst sentiment, investors should consider the company's potential but critically evaluate its current valuation, especially in light of InvestingPro's assessment that the stock may be trading above its Fair Value.
• Monitoring Zscaler's progress towards its $5 billion Annual Recurring Revenue target, sustained high gross profit margins, free cash flow generation, and the successful integration of acquisitions like Red Canary will be crucial for assessing long-term investment viability.
• While Zscaler's differentiated Zero Trust platform and significant client wins position it well in the cybersecurity market, investors should factor in the premium valuation and the inherent risks associated with high-growth technology stocks when making investment decisions.