Zscaler, Inc. ZS, a pioneer in Zero Trust cybersecurity, has experienced a 21.9% decline in its stock price over the past year, underperforming the S&P 500, Zacks Computer and Technology sector and key competitors like Palo Alto Networks, Inc. PANW, Fortinet, Inc. FTNT and Cisco Systems, Inc. CSCO. While this underperformance has raised concerns, it also presents a unique opportunity for investors to capitalize on Zscaler’s strong fundamentals, innovative edge and significant market potential.

One-Year Price Return Performance

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Zscaler’s stock drop can be attributed to macroeconomic headwinds, including inflation, elevated interest rates and cautious enterprise IT spending. Increasing competition in the Zero Trust cybersecurity space and the company’s historically high valuation also contributed to its vulnerability during market corrections. However, these are short-term pressures that do not diminish Zscaler’s long-term growth potential.

Forward 12-Month P/S Ratio

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Zscaler’s Dominance in the High-Growth Zero Trust Market

Zscaler remains the leader in Zero Trust cybersecurity, a market projected to expand at a CAGR of more than 16.7% through 2032, driven by rising cyber threats and stricter regulatory mandates, according to a report by Fortune Business Insights. Its scalable Zero Trust Exchange platform is perfectly aligned with the surge in hybrid work models and cloud-native architectures.

Zscaler’s relentless innovation strengthens its competitive edge. Recent advancements include artificial intelligence (AI)-powered threat detection in its Zero Trust Exchange and new solutions in Zero Trust SD-WAN and 5G security. These expansions into high-growth areas position Zscaler as a frontrunner in cybersecurity while opening up diverse revenue streams.

Zscaler’s Stellar Financial Performance Despite Challenges

Despite macroeconomic pressures, Zscaler’s financial results remain impressive. In the first quarter of fiscal 2025, revenues soared 26% year over year to $628 million, with emerging products growing at twice the rate of core offerings. The company achieved a record operating margin of 21% and delivered non-GAAP earnings growth of 40% to 77 cents per share.

Zscaler’s growing customer base underscores its strong market positioning. At the end of the first quarter, it had 585 customers generating $1 million or more in annual recurring revenues (ARR), with Fortune 500 and Global 2000 companies comprising a substantial portion. At the end of the first quarter, approximately 45% of the Fortune 500 companies and more than 35% of the Global 2000 companies are using Zscaler’s solutions. Its net dollar retention rate of 114% reflects customer loyalty and upselling potential.

Zscaler is poised to benefit from enterprise migration to cloud environments, the increasing adoption of AI-driven cybersecurity and a recovery in IT spending. Its focus on large-scale enterprise deals and innovation pipeline are expected to drive accelerated growth in 2025 and beyond. The Zacks Consensus Estimate for fiscal 2025 and 2026 indicates strong double-digit revenue growth.

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Additionally, the consensus mark for fiscal 2025 earnings has been revised upward by 12 cents to $2.99 per share over the past 60 days. The stock surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 29%.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Conclusion: Buy Zscaler Stock Now

Zscaler stock’s decline is more of a reflection of temporary headwinds than structural weaknesses. The company’s leadership in the rapidly expanding Zero Trust market, consistent financial performance and strong innovation pipeline make it a compelling long-term investment.

With a Zacks Rank #2 (Buy), now is the time to consider adding ZS stock to your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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