Zscaler Stock To $550?

Core Thesis - Zscaler's stock has rebounded significantly, currently priced at $270, reflecting a 50% year-to-date increase, driven by AI demand and improved margins [2] - The company reported $2.67 billion in revenue for fiscal 2025, a 23% year-over-year increase, with projections of $3.3 billion for fiscal 2026 [3] - Zscaler is trading at approximately 15–16x forward sales, which is lower than competitors like CrowdStrike and Cloudflare, suggesting potential for stock price to reach $550 [3][4] Key Growth Drivers - The transition to cloud and hybrid models is increasing demand for Zero Trust and secure access solutions, positioning Zscaler favorably in the market [5] - Adjusted EPS grew by 23% in fiscal 2025, with annual recurring revenue exceeding $3 billion, indicating improving profitability [5] - New AI-enhanced security capabilities and strategic acquisitions are broadening Zscaler's market reach and growth prospects [5] - Collaborations with hyperscalers and channel partners are enhancing customer retention and upsell opportunities [5] - Zscaler has a net retention rate of 115% and is winning larger deals, indicating strong customer momentum [5] Valuation and Market Position - At $275 per share, Zscaler is trading at premium valuations, but strong growth visibility supports a potential price of $550 if revenues and margins improve [6] - The company represents a high-risk, high-reward scenario, with its future closely tied to execution and competitive positioning in the cloud security space [6] Risks and Challenges - Despite improved non-GAAP profitability, GAAP losses may deter some institutional investors [8] - Operating expenses consume nearly 60% of revenue, necessitating efficient execution [8] - A forward sales multiple around 16x reflects growth expectations, and any slowdown in billings could negatively impact the stock [8] - Competition from firms like Palo Alto Networks, CrowdStrike, and Cloudflare is intensifying, putting pressure on pricing and innovation [8]