Zscaler Rallies 16% YTD: Is it the Right Time to Buy the Stock?

Core Insights - Zscaler, Inc. has rebounded sharply in 2025 with a year-to-date stock increase of 15.7% after a challenging 2024 where it declined by 18.5%, outperforming key cybersecurity peers [1] - The company is positioned as a leader in the zero trust cybersecurity market, which is expected to grow at a CAGR of 16.7% through 2032, driven by increasing cyber threats and regulatory requirements [4] - Zscaler's financial performance remains strong, with Q1 fiscal 2025 revenues increasing by 26% year-over-year to $628 million, and a record operating margin of 21% [8][10] Company Positioning - Zscaler dominates the zero trust cybersecurity space, with a robust financial foundation and unmatched leadership in this area [3][4] - The company's Zero Trust Exchange platform is designed to replace outdated security architectures, and recent innovations enhance its competitive edge [5] - Zscaler's aggressive acquisition strategy, including the purchase of Airgap Networks and Avalor, has expanded its capabilities and solidified its market position [6][7] Customer Base and Market Dynamics - Zscaler has a growing customer base, with 585 customers generating over$ 1 million in annual recurring revenues, including a significant portion of Fortune 500 and Global 2000 companies [11] - The company's net dollar retention rate of 114% indicates strong customer loyalty and potential for upselling [11] - Zscaler is well-positioned to benefit from the migration to cloud environments and the increasing adoption of AI-driven cybersecurity solutions [12] Financial Outlook - The Zacks Consensus Estimate indicates strong double-digit revenue growth for fiscal 2025 and 2026, with a projected long-term EPS growth of 13.5% [13][14] - Despite a projected year-over-year decline in EPS for fiscal 2025, the outlook for fiscal 2026 shows double-digit percentage growth [13] Valuation - Zscaler trades at a forward 12-month price-to-sales ratio of 11.02, significantly higher than the industry average of 5.61, reflecting its premium valuation justified by growth and market leadership [15] - The company's innovative AI-driven security solutions and expanding market opportunities make it a compelling investment for long-term exposure to the cybersecurity sector [17] Conclusion - Zscaler is recognized as the leader in the zero trust market, with robust revenue growth and significant enterprise adoption, making it a strong candidate for investment [18]