Zscaler, Inc.

Based on the provided analysis, ZS presents a complex and high-risk investment profile.

Technical & Valuation Concerns From a technical perspective, ZS is in a pronounced downtrend, having lost significant value and trading near its 52-week lows, indicating persistent negative sentiment. Its valuation metrics are exceptionally high, reflecting a substantial growth premium that demands flawless execution to justify, posing a considerable risk if growth slows.

Fundamental Strengths Fundamentally, ZS shows strong positives with robust revenue growth, excellent gross margins, and importantly, very strong operating cash flow. This provides the liquidity needed to fund its growth investments despite reporting a net loss, a common strategy in its sector. The company's financial health is adequate, with a manageable debt level.

Recommendation ZS is a high-risk, high-potential stock suitable only for aggressive investors with a long-term horizon who can tolerate significant volatility. The current technical weakness and rich valuation create a high entry barrier. Investors should consider a dollar-cost averaging strategy on further weakness, as the company's solid underlying business fundamentals and market position in cloud security could deliver substantial rewards if its growth trajectory continues. *Not investment advice, for reference only.*

RockFlow Model Forecast: Three Scenarios for 2026

Based on a comprehensive assessment, here is a 12-month outlook for Zscaler (ZS):

12-Month Outlook for ZS

The outlook for ZS is bifurcated, balancing its strong fundamental growth against significant technical and valuation headwinds. Over the next 12 months, key catalysts will be its ability to maintain its premium revenue growth rates and demonstrate a clear path to profitability, which could rebuild investor confidence and reverse the current negative momentum. However, the primary risks are the persistent downtrend and its exceptionally high valuation, which leaves the stock vulnerable to further multiple contraction if quarterly results merely meet, rather than exceed, high expectations or if macroeconomic conditions pressure growth stocks. Given the absence of a specific analyst target and the current high volatility, a prudent target price range is difficult to establish; a bullish scenario ($220-$260) depends on a successful trend reversal and sustained execution, while a bearish scenario could see a retest of recent lows ($140-$160) if sentiment fails to improve.

Wall Street Consensus

Most Wall Street analysts are optimistic about Zscaler, Inc.'s 12-month outlook, with consensus target around $168.99, indicating expected upside potential.

Overall, ZS has investment potential but also faces challenges. Here are key factors to weigh before investing.

Overall assessment: ZS has experienced severe declines across all measured timeframes, reflecting substantial shareholder value destruction and pronounced underperformance versus market benchmarks.

Short-term performance: The stock has dropped 18.09% over one month and plummeted 45.24% over three months, dramatically underperforming the market by 47.09 percentage points. This steep decline pattern indicates persistent selling pressure and negative sentiment toward the security.

Current position: Trading near $168.99 places ZS just 3.7% above its 52-week low, having fallen approximately 50% from its yearly high. Given the maximum drawdown of -50.24% and proximity to recent lows, the stock appears deeply oversold from a technical perspective.

Revenue & Profitability: ZS demonstrates solid revenue growth with Q1 2026 revenue increasing to $788 million from $719 million in the prior quarter. The company maintains a strong gross profit margin above 76%, though it operates at a net loss with a negative net profit margin of -1.47%. This indicates ZS is prioritizing growth investments over near-term profitability, a common strategy for scaling cloud security companies.

Financial Health: The company maintains a healthy current ratio of 1.82 and a moderate debt-to-equity ratio of 0.93. Notably, ZS generates strong operating cash flow with an operating cash flow to sales ratio of 57%, providing substantial liquidity to fund operations despite the reported net loss. The cash flow to debt ratio of 0.24 suggests adequate capacity to service obligations.

Operational Efficiency: ZS shows mixed operational metrics with a negative return on equity of -0.59% and low asset turnover of 0.12, indicating suboptimal utilization of its asset base. However, the company maintains efficient working capital management with a cash conversion cycle of 37 days, supported by strong receivables turnover and minimal inventory requirements typical for SaaS businesses.

Valuation Level ZS exhibits negative trailing and forward P/E ratios, indicating the company is currently unprofitable on a GAAP earnings basis. While this is common for growth-stage tech companies, the exceptionally high negative values (-675.96 TTM, -1130.38 Forward) suggest the market is pricing in substantial future growth. Based on traditional P/E analysis, the stock cannot be classified as undervalued and appears richly valued relative to its current earnings.

Peer Comparison Without specific industry average data, a precise peer comparison is not possible. However, metrics such as the extremely high EV/EBITDA of 1513 and a PB ratio of 13.85 typically indicate a significant growth premium. This valuation profile is characteristic of high-expectation cybersecurity or cloud software companies, where investors prioritize top-line growth and market position over current profitability.

Based on its Beta of 1.021, ZS exhibits volatility that is nearly identical to the broader market. However, the stock carries significant volatility risk, as evidenced by a severe maximum one-year drawdown of -50.24%, indicating a heightened potential for substantial capital depreciation during market downturns or company-specific challenges.

Regarding other risks, the absence of reported short interest is atypical for a high-growth technology stock and may suggest limited availability of reliable short interest data rather than a complete lack of bearish sentiment. While this could imply a degree of market confidence, it does not eliminate fundamental risks related to execution, competition, or valuation that are inherent to its sector.