Why Zscaler (ZS) is a Strong Contender for Portfolio Pick
Zscaler's ZS shares have rallied 101.1% year to date compared with the Zacks Computer and Technology sector’s growth of 53.1%. The stock has also outpaced the year-to-date return of major stock market indexes, including the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite, which have gained 14.5%, 25% and 44.3%, respectively.
The surge reflects investors' confidence in Zscaler's strategic positioning, robust financial performance and sustained focus on expanding its product portfolio, which caters to customers’ needs amid current cybersecurity challenges.
ZS has experienced continuous growth in both revenues and profits over the past several quarters, driven by high demand for its cybersecurity solutions. The company has an impressive earnings surprise history. Its earnings outpaced estimates in each of the trailing four quarters, delivering an average surprise of 27.31%.
Additionally, earnings estimates for the current and next fiscal year have increased, implying robust inherent growth potential. The Zacks Consensus Estimate for fiscal 2024 earnings has moved north 24 cents over the past 30 days to $2.47 per share. The consensus mark for fiscal 2025 earnings has moved north 9 cents to $2.95 per share in the past 30 days. Additionally, ZS has a long-term earnings growth expectation of 37%.
Zscaler, Inc. Price and Consensus
Zscaler, Inc. price-consensus-chart | Zscaler, Inc. Quote
The stock carries a Zacks Rank #2 (Buy) and has a Growth Score of A at present. The Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities.
With healthy fundamentals, ZS appears to be a solid investment option at the moment.
Growth Drivers
Zscaler's remarkable growth stems from its strong lineup of cybersecurity and networking solutions, which are gaining popularity due to the rise of hybrid work setups. With more people connecting to their employers' networks due to the shift to remote or hybrid work, there's a growing demand for cybersecurity solutions to protect these exposed networks. Per the Grand View Research report, the global cybersecurity market is projected to witness a CAGR of 12.3% from 2023 to 2030. The prediction bodes well for the company, which has a diversified cybersecurity product portfolio.
The company offers Zscaler Internet Access (ZIA), Zscaler Private Access (ZPA) and Zscaler Digital Experience (ZDX), all dedicated to providing a secure cyber environment. The ZIA offers Advanced Threat Protection, Sandbox and Browser Isolation for deterring cyberattacks. The ZPA provides Zero Trust Network Access, application access, discovery, segmentation and protection, and reduces attack surface. The ZDX is dedicated to Cloud Security Posture Management, Cloud Infrastructure Entitlement Management and Infrastructure as Code. In its first-quarter 2024 earnings report, ZS stated that approximately 50% of its customers have purchased all of its offerings, including ZIA, ZPA and ZDX.
The increasing use of SD-WAN solutions might greatly boost the company's growth in the future. Predictions from MarketsAndMarkets suggest that the SD-WAN market could surge from $3.4 billion in 2022 to $13.7 billion by 2027, with a significant growth rate of 31.9% annually. With limited vendors offering both security and SD-WAN solutions, Zscaler is in a strong position to benefit from this expanding market. Moreover, its partnerships with VMware and Silver Peak are aiding in securing SD-WAN deployments, further solidifying its position in this space.
In the past few years, ZS has acquired multiple companies to broaden its portfolio. In February 2023, the company acquired Canonic Security, a startup focused on protecting against attacks that target software-as-a-service. In September 2022, Zscaler acquired ShiftRight to boost its cloud security offerings. In May 2021, it acquired Smokescreen, which enhanced Zscaler’s Zero Trust Exchange and Advanced Active Defense capabilities. We believe these acquisitions have not only strengthened the data-protection capabilities of the company but also expanded its customer base.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Kanzhun BZ, Ceridian HCM CDAY and CommVault Systems CVLT, each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Kanzhun's fourth-quarter 2023 earnings has moved south 2 cents to 16 cents per share in the past 30 days. Shares of BZ have plunged 20.1% year to date.
The Zacks Consensus Estimate for Ceridian HCM’s fourth-quarter fiscal 2023 earnings has moved north a penny to 32 cents per share in the past 60 days. Shares of CDAY have risen 4.8% year to date.
The Zacks Consensus Estimate for CommVault Systems’ third-quarter 2024 earnings has remained unchanged for the past 90 days at 73 cents per share. Shares of CVLT have rallied 28.3% year to date.
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