Wall Street Analysts Think Zscaler (ZS) Is a Good Investment: Is It?

Core Insights - The average brokerage recommendation (ABR) for Zscaler (ZS) is 1.64, indicating a consensus between Strong Buy and Buy based on 39 brokerage firms' recommendations [2] - Despite the positive ABR, there are concerns regarding the reliability of brokerage recommendations due to potential biases stemming from the vested interests of brokerage firms [4][5] - The Zacks Rank, which is based on earnings estimate revisions, provides a more reliable indicator of near-term stock performance compared to the ABR [6][9] Brokerage Recommendations - Zscaler's ABR consists of 26 Strong Buy and 1 Buy recommendations, accounting for 66.7% and 2.6% of total recommendations respectively [2] - The ABR is calculated based on brokerage recommendations and is typically displayed with decimals, while the Zacks Rank is a quantitative model displayed in whole numbers [7] Analyst Optimism and Earnings Estimates - Analysts from brokerage firms tend to be overly optimistic, often issuing more favorable ratings than their research supports, which can mislead investors [8] - The Zacks Consensus Estimate for Zscaler has declined by 2.9% over the past month, indicating growing pessimism among analysts regarding the company's earnings prospects [11] Zacks Rank vs. ABR - The Zacks Rank is driven by earnings estimate revisions and is more timely in reflecting future price movements compared to the ABR, which may not always be up-to-date [10] - Zscaler currently holds a Zacks Rank of 4 (Sell), suggesting that the positive ABR should be approached with caution [12]