Zscaler (NASDAQ: ZS)
Zscaler is a cloud-based information security company that created its native platform, Zscaler Zero Trust Exchange. The company specializes in "zero trust" security solutions, which treat everyone, including an organization's most trusted employees, as potential threats. Based in San Jose, California, the company is currently a leader in helping prevent threats against cybersecurity across the world. Mentions of the company have increased enormously by 136.4% over the last day prompting investors to look into what made this stock generate such positive hype.
Zscaler currently trades at $162.27 per share on the NASDAQ.
Positive Hype
There are multiple reasons why this stock should be on your radar at the moment, some of them are as follows.
ZScaler beat Wall Street analysts’ expectations on the top and bottom lines, as revenue surged 63% to $287 million and non-GAAP earnings rose 13% to $0.17 per diluted share.
In addition, it expects its revenue to increase about 60% to $1.08 billion in the current fiscal year. In its third-quarter report, it raised its full-year revenue guidance from 55%-56% growth to 60% growth.
Despite the forecast of a recession, cybercrime has grown with nearly 874 million phishing attacks observed globally in 2021, an increase of 29% from the prior year, which means Zscaler could continue to grow unhindered.
According to Mordor Intelligence, zero-trust security services could still grow at a compound annual growth rate (CAGR) of 18% from 2021 to 2026.
Zscaler has maintained strong financials; gross margins have consistently stayed above 80% since its IPO in 2018. Its adjusted operating margins also turned positive and expanded to double-digit levels throughout fiscal 2021 and 2022.
The company gained a 77% year over year increase in new customers that generated over $100,000 in ARR and continues to lock in more high profile customers as well.
Negative Hype
Although Zscaler has generated a lot of positive hype, there are still reasons to be precautious before taking a position in the company. Here are some of them.
Although Zscaler is down nearly 60% from its all-time high, it trades at an expensive valuation of 21.5 times sales.
Rising interest rates have driven investors away from more expensive growth stocks like Zscaler resulting in some negative hype as well.
Zscaler could still be at the risk of losing customers to cheaper platforms with the onslaught of an economic recession.
Conclusion
Zscaler has a lot of market opportunity (valued at $72 billion) with trends like cloud computing, remote work and of course the endless growth of internet-connected devices. Being the largest security cloud in the world, having achievable enviable growth and maintaining strong financials make Zscaler a good choice of investment. Even though there are threats, the company functions in a niche that grows without bounds and will hopefully continue to do so too. If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
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