Zscaler Rises 9% in 3 Months: Should You Buy, Hold or Sell the Stock?

Core Insights - Zscaler, Inc. (ZS) stock has shown significant volatility over the past three months but delivered a 9.2% return, outperforming the broader technology sector and the S&P 500, which declined by 11.9% and 5.4%, respectively [1][4] - The company is experiencing strong demand for its cybersecurity solutions, driven by increasing threats and a shift from legacy network security to cloud-based solutions [5][6] Financial Performance - In Q2 of fiscal 2025, Zscaler achieved a 12-month trailing dollar-based retention rate of 115%, with Remaining Performance Obligations growing 28% year over year [6] - Zscaler had 620 customers with annualized recurring revenues (ARR) exceeding $1 million and 3,291 customers with ARR above $100,000 [6][8] - The Zacks Consensus Estimate for fiscal 2025 revenues suggests a 22.2% year-over-year increase, with EPS revised upward to $3.07 [9][10] Government Sector Expansion - Zscaler is enhancing its GovCloud offerings to comply with government security standards, which will help expand its presence among government agencies [7][8] - The company added one cabinet-level agency client in Q4, bringing its total to 13 out of 15 U.S. cabinet-level agencies [8] AI and Cybersecurity Innovations - Zscaler is leveraging generative AI to enhance its security solutions, partnering with NVIDIA and CrowdStrike to integrate AI technologies [13][14] - The company has deepened its AI capabilities through acquisitions and collaborations, which have driven financial performance in its AI-driven analytics products [15] Valuation Concerns - Zscaler holds a premium valuation, indicated by a Zacks Value Score of F and a Forward 12-month P/S ratio of 10.25X, significantly higher than the sector average of 5.49X [16][19] Investment Recommendation - Despite the premium valuation, Zscaler's strong position in Zero Trust security and AI innovations suggest that holding the stock remains a viable strategy [4][19]