Zscaler Share Price Forecast March 2022 – Time to Buy ZS?
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Shares of cloud-based cybersecurity company Zscaler(NASDAQ: ZS)are in the green today, after closing at $237.93 as of March 28th (19:55 EDT). Zscaler shares hit an all-time high of $368.75 last November before pulling back to the $230s. The decline in share prices has sparked interest in investors.
Zscaler – Technical Analysis
Zscaler’s financial statement indicates the market cap to be $33.568 billion with total assets worth $ 2.422 billion. Revenue for 2021 was at $673.10 million with a profit margin of -38.93% compared to $431.27 million in 2020.
Oscillators such as Relative Strength Index (14)(53.24), Stochastic %K (14, 3, 3)(92.23), Commodity Channel Index (20)(66.02), Average Directional Index (14)(18.14) and Awesome Oscillator(−6.84) are neutral. Moving averages such as Exponential Moving Average (10)(227.09), Simple Moving Average (10)(223.19), Exponential Moving Average (20)(227.47), Simple Moving Average (20)(220.80) and Exponential Moving Average (30)(232.26) are indicating a buy action.
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Recent Developments
Jay Chaudhry and K. Kailash founded Zscaler back in 2007. The company secured its first funding of $38 million from strategic investors, including Lightspeed Ventures in 2012. It closed another round of financing worth $100 million led by TPG in 2015. Finally, the company conducted an IPO in 2018 where it raised $192 million. The company achieved ISO 27001 certification, which is a globally recognized standard for the establishment and certification of information security management systems in 2014. The company has 5 main products – Zscaler Zero Trust Exchange, Zscaler Private Access, Zscaler Internet Access (ZIA), Zscaler Cloud Protection and Zscaler Digital Experience (ZDX).
Zscaler has a cloud-native security platform that doesn’t need on-premise hardware appliances to be installed. It follows a zero trust model, where even trusted employees are seen as potential threats. With an aim to disrupt on-premise appliances with cloud-native cybersecurity services, Zscaler mainly monitors the internal and web traffic of an organization. The company has more than 5,600 customers worldwide, including a quarter of the Forbes Global 2000, compared to 2800 in 2018.
Zscaler ended the second quarter of 2022, generating over $1 million in annual recurring revenue with 25 customers. This was up by 85% compared to a year ago. Management expects revenue to increase by 55%-56%. The company’s adjusted operating margin remained consistently above 80% since its IPO in 2018. Free cash flow increased by 87% year-over-year to reach $112.8 million in the first half of 2022. Zscaler ended the second quarter with $1.21 billion in short-term investments and $409.8 million in cash and equivalents. This indicates that the company won’t run out of cash even if losses increase.
Should You Buy ZS Shares?
Investors may have an issue with Zscaler’s valuation. Currently, Zscaler shares are trading at more than 400 times its forward non-GAAP earnings and 32 times this year’s sales. The company’s liberal policy on using stock-based compensation to subsidize its salaries has caused its share count to rise about 20% over the past four years. This accounted for 39% of the company’s revenue in the first half of 2022. Zscaler’svaluation has little chance of cooling off with this ongoing dilution.
Zscaler is one of the cybersecurity sector’s fastest-growing companies. However, the shares are still expensive at the current levels. It is true that the company’s core sectors remain healthy and have a lot of potentials to grow in the coming year. However, compared to peers like CrowdStrike, which has lower leverage and trades at more reasonable valuations, this is not the right time to buy Zscaler shares.
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