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Does Peer Earnings Pressure Change The Bull Case For Zscaler Stock (ZS)?

Simply Wall St · 2d ago
  • Zscaler recently saw its shares come under pressure after Fortinet and Check Point released earnings that pointed to slower service revenue trends. At the same time, a broader tech selloff weighed on cybersecurity providers.
  • The pullback leaves Zscaler trading at a forward P/E below its historical average. This puts extra attention on how upcoming results and guidance might realign investor expectations with the company’s longer term subscription and ARR ambitions.
  • We will now assess how sector wide cybersecurity weakness, sparked by peer earnings, could reshape Zscaler’s investment narrative and risk profile.

Scan how other security providers are priced after this reset by running Zscaler alongside our hand picked 31 resilient stocks with low risk scores in your next round of idea hunting.

Zscaler Investment Narrative Recap

To own Zscaler, you need to believe the shift to cloud delivered zero trust security and data protection continues to support subscription demand, including newer services for AI and agent traffic. The immediate test is whether upcoming numbers and guidance calm worries sparked by Fortinet and Check Point around slower service trends.

The key near term catalyst is Zscaler’s ability to keep annual recurring revenue moving toward its long term framework while managing churn from the Red Canary MDR acquisition and smaller AI security deals that start modestly. The main risk is that growth into fiscal 2027 tracks closer to recent guidance without signs of reacceleration.

The recent sector wide pullback throws more attention on Zscaler’s disclosed progress in Zero Trust Branch, Zero Trust Cloud, security for AI, and Z Flex, which together frame the growth engine investors are underwriting. These offerings already contribute meaningful ARR and bookings, so reported trends here will likely matter more than near term share price swings.

Zero Trust Branch and Zero Trust Cloud together sit around US$250 million of ARR with reported ARR growth above 60% for eight consecutive quarters, while security for AI has delivered over US$100 million of bookings and more than US$70 million of ARR in the last 12 months. How these lines track relative to fiscal 2027’s slower ARR outlook will shape how you weigh the current risk and reward trade off.

What Current Assumptions Say About Zscaler

Analysts currently project that Zscaler's revenue will grow by 16.7% each year over the next 3 years, with profit margins moving from a loss of 1.9% today to a positive 3.3% over that window. Earnings are expected to reach US$178.3 million by 2029, compared with an earnings loss of US$63.2 million today, which implies an earnings uplift of about US$241.5 million over that period. Those projections sit alongside an assumed increase in the share count of 2.25% per year and a discount rate of 8.7% used to bring future cash flows back to today.

On the valuation side, the same analyst set links Zscaler's current story to a 2029 revenue figure of US$5.3b and earnings of US$178.3 million. That scenario implies the stock would trade on a P/E of 293.1x those projected earnings, compared with the current US Software industry multiple of 30.6x. Against a share price of US$228.66 as of the latest report, the consensus target of US$233.38 sits only 2% higher. This suggests that many on the Street see the shares as roughly in line with their fair value assumptions right now.

Zscaler's narrative projects US$5.3b revenue and US$178.3 million earnings by 2029, which assumes 16.7% yearly revenue growth and an earnings increase of about US$241.5 million from an earnings loss of US$63.2 million today.

Uncover how Zscaler's fair value indicates a 4% potential upside to its current price, which could narrow quickly if sentiment improves.

NasdaqGS:ZS 1-Year Stock Price Chart
NasdaqGS:ZS 1-Year Stock Price Chart

Exploring Other Perspectives

One alternate angle focuses on Zscaler’s AI security profitability rather than growth. The most cautious analysts worry that prioritising speed for AI rich products could keep gross margin near 80% and leave earnings around only US$16.2 million by 2029 on similar US$5.3b revenue assumptions. Those forecasts were set before this week’s sector shock, so expect opinions to evolve.

Explore 4 other Zscaler fair value estimates, including one that suggests it could be worth just $233.38.

Reach Your Own Conclusion

Don't just follow the ticker. Dig into the data and build a conviction that's truly your own.

Looking For More Investment Ideas Beyond Zscaler?

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