Zscaler’s stock recently faced a downturn despite strong fiscal fourth-quarter results and an optimistic outlook for the upcoming fiscal year. Let’s delve into why this cybersecurity company—a leader in zero trust security—may still hold potential value for investors.
Fiscal Q4 Performance
In its fiscal 2025 fourth quarter, Zscaler reported a remarkable 21% year-over-year revenue increase, totaling $719.2 million, which exceeded management’s guidance of $705 to $707 million. Adjusted earnings per share (EPS) rose to $0.89, surpassing the projected $0.79 to $0.80. The company generated $250.6 million in operating cash flow and had $3.6 billion in cash, indicating a solid financial position despite recording $1.7 billion in debt from convertible notes.
A noteworthy highlight was the surge in calculated billings, which rose by 32% to $1.2 billion, along with deferred revenue climbing 30% to $2.47 billion. These metrics signal that revenue growth may accelerate in fiscal 2026.
Comprehensive Overview of Zscaler’s Strategic Position
Zscaler specializes in zero trust security, a crucial area in today’s evolving cybersecurity landscape. The notion of "zero trust" implies that no user or device is automatically deemed trustworthy, which necessitates continual verification and authorization for access to services.
Additionally, the company is tapping into the growth of AI security, addressing the complexities posed by artificial intelligence in the cyber threat arena. New initiatives focused on Zero Trust Everywhere and Data Security Everywhere contributed to the annual recurring revenue (ARR) exceeding $1 billion in the latest quarter. Zscaler is also developing solutions to secure interactions between agents and applications, signaling an expansion in their service offerings that centers around modern security challenges.
Guidance and Future Prospects
Looking ahead, Zscaler forecasts its fiscal 2026 revenue to fall between $3.265 billion and $3.284 billion—indicative of growth in the low-to-mid 20% range. Furthermore, the acquisition of Red Canary, expected to add around $90 million in revenue, may further boost growth.
Management aims to achieve an ARR between $3.676 billion and $3.698 billion in fiscal 2026, which also estimates an adjusted EPS between $3.64 and $3.68. For the upcoming fiscal first quarter, guidance indicates revenue of $772 million to $774 million and adjusted EPS of $0.85 to $0.86, reflecting a 23% growth rate.
Stock Market Reactions
Despite these promising results and guidance, Zscaler’s stock plummeted by 4% post-announcement, which could be attributed to investor profit-taking or broader market sentiments. Nonetheless, shares remain around 50% higher year-to-date. This dip might present a buying opportunity for investors, especially upon considering Zscaler’s ongoing growth in new sectors.
Investment Considerations and Valuation
While Zscaler’s current valuation stands at a forward price-to-sales ratio of roughly 13, it remains essential to consider the overall market context when evaluating its merits. Analysts suggest Zscaler could maintain a revenue growth rate around 25%. This suggests a fair valuation, but with the stock not appearing undervalued at the moment, those planning to invest might benefit from a potential further price dip.
Zscaler’s innovative strategies, such as the introduction of its flexible payment program, Z-Flex, have also seen significant uptake. Following its recent introduction, Z-Flex billings saw an impressive 50% increase, hinting at additional growth avenues.
Competing Perspectives on Zscaler
Despite its positive trajectory, it’s worth noting that other investment opportunities might be more lucrative in the cybersecurity space. Some analysts recommend alternatives like CrowdStrike or Palo Alto Networks, which currently capture more market attention. The Motley Fool’s Stock Advisor recently identified ten stocks, excluding Zscaler, that are poised for significant returns. Historical data suggests that investing in other recommended stocks may have accrued substantial returns, further urging investors to weigh their options carefully.
Conclusion: Should You Invest?
In summary, Zscaler presents intriguing potential due to its strong recent performance, innovative products, and a favorable outlook. Despite its recent stock decline, the fundamentals point toward increasing revenue and profit potential. That said, prospective investors should conduct thorough research or consult financial advisors before making investment decisions, keeping in mind Zscaler’s current competitive landscape.
As always, while its position in the fast-evolving cybersecurity market is promising, market trends and external factors should also be accounted for, ensuring a balanced approach to any investment strategy.
