Is Zscaler Stock a Buy, Sell or Hold at a P/S Multiple of 15.56X?

Core Viewpoint - Zscaler, Inc. is a leading player in the cybersecurity sector, but its high price-to-sales (P/S) multiple of 15.56X raises concerns about its valuation amid slowing growth rates [1][6]. Financial Performance - In Q3 FY25, Zscaler reported a year-over-year revenue growth of 22.6%, a decline from the 30% range in FY24 and 40% in FY23 [3][4]. - The revenue growth forecast for FY25 is expected to be around 22.7%, indicating a continued slowdown [4]. - The Zacks Consensus Estimate for Zscaler's FY25 earnings suggests a year-over-year decline of 0.31% [7]. Competitive Landscape - Zscaler faces increasing competition from established cybersecurity firms such as Palo Alto Networks, CyberArk, and CrowdStrike, which are investing heavily in innovative cybersecurity solutions [5][6]. - The company must maintain high spending on R&D to stay competitive and innovate in the market [5][6]. Growth Initiatives - Zscaler's New Growth Categories, which include Zero Trust Everywhere and Agentic Operations, reached approximately $1 billion in annual recurring revenues (ARR) [10]. - The company has successfully implemented its Zero Trust Exchange, gaining over 210 adoptions and achieving 60% quarter-over-quarter growth in Q3 FY25 [9]. - Zscaler's total ARR reached $2.9 billion in Q3 FY25 [10]. Strategic Partnerships and Innovations - Zscaler has launched new solutions like Asset Exposure Management and partnered with SAP to integrate its services within SAP's RISE framework [11]. - The company is enhancing its offerings with AI technologies through partnerships with NVIDIA and CrowdStrike [12]. Government Sector Expansion - Zscaler is expanding its GovCloud solutions and has enabled numerous government agencies to utilize its products, serving 14 out of 15 U.S. cabinet-level agencies [14][15]. - The inclusion in Amazon Web Services' Internet Control Message Protocol enhances Zscaler's accessibility to U.S. federal agencies [15]. Market Performance - Zscaler's share price has surged 74% year-to-date, outperforming the Zacks Security Industry and its peers [16].