Zscaler Rises 18% in a Month: Should You Buy, Sell or Hold the Stock?

Core Insights - Zscaler's stock has increased by 18.2% in the past month, outperforming the Zacks Security industry's return of 14.8%, leading investors to consider whether to hold or take profits [1] Group 1: Performance and Demand - The demand for Zscaler's cybersecurity solutions is strong, driven by increasing threats such as nation-state cyber warfare and ransomware attacks [1] - Zscaler achieved a 12-month trailing dollar-based retention rate of 115% in Q2 fiscal 2025, supported by larger bundle sales and robust upsells [2] - Remaining Performance Obligations increased by 28% year over year, indicating strong future revenue commitments [2] Group 2: Government Sector Expansion - Zscaler is enhancing its GovCloud solutions to comply with government security standards, expanding its presence among government agencies [3] - The company added one cabinet-level agency client in Q4, bringing its total to 13 out of 15 U.S. cabinet-level agencies, indicating growth potential in the public sector [4] Group 3: AI Integration and Partnerships - Zscaler is implementing generative AI in its offerings, collaborating with NVIDIA and CrowdStrike to enhance its cybersecurity solutions [5][6] - The integration of NVIDIA's AI technologies strengthens Zscaler's Zero Trust Security model, improving its capabilities in threat intelligence and real-time insights [6] Group 4: Financials and Investments - Zscaler's revenue for fiscal 2025 is projected to increase by 22.2% year over year, reflecting strong demand for its products [8] - Non-GAAP sales and marketing expenses rose by 12.9% year over year to $237.5 million, accounting for 36.7$105 million, representing 16.2% of total revenues, highlighting the company's commitment to innovation [11] Group 5: Valuation Concerns - Zscaler's premium valuation is evident with a Forward 12-month P/S ratio of 11.56X, significantly higher than the sector average of 5.71X, raising concerns about overvaluation [12] Group 6: Investment Recommendation - Despite the premium valuation, Zscaler's AI innovations and strong position in the Zero Trust security space suggest it is a stock worth retaining, currently holding a Zacks Rank 3 (Hold) [15]