Is Zscaler's Recent Pullback a Strategic Buying Opportunity?

Zscaler (ZS), a leader in cloud security, has experienced a 27% stock price pullback in Q4 2025, with shares trading near $243 as of November 26, 2025 according to market data. This decline follows mixed earnings results: while the company exceeded revenue expectations by 1.9% in Q4 2025, its non-GAAP earnings per share (EPS) of -$0.11 missed analyst forecasts of $0.80, triggering a 2.37% post-earnings drop as reported. The volatility raises a critical question for investors: Is this pullback a strategic entry point, or a warning sign of near-term challenges?

Balancing Near-Term Volatility with Long-Term Fundamentals

Zscaler's financial performance in fiscal 2024 provides a foundation for optimism. Revenue grew 34% year-over-year to $2.1678 billion, with non-GAAP net income surging to $508.1 million-a 83% increase from 2023 according to the company's earnings release. Operating margins expanded to 20% of revenue, up from 15% in 2023, reflecting improved efficiency. However, the Rule of 40-a metric combining growth rate and profit margin-declined to 63.4% in 2024 from 70.8% in 2023 according to financial results. This suggests that while Zscaler remains a high-performing SaaS company, margin expansion has slowed relative to its rapid growth phase.

The Q4 2025 earnings miss highlights near-term risks. The company's GAAP net loss narrowed to $57.7 million from $202.3 million in 2023 according to financial results, but non-GAAP metrics remain the focus for investors. Analysts argue that Zscaler's intrinsic value is undervalued by 16.2% at $290.69 per share, based on discounted cash flow models as reported. This premium implies confidence in the company's ability to scale margins and sustain growth despite short-term hiccups.

Strategic Positioning and Margin-Scaling Potential

Zscaler's long-term prospects are bolstered by its leadership in AI-driven security and Zero Trust architecture. The company surpassed 500 billion daily transactions on its Zero Trust Exchange platform in 2024, a milestone underscoring its market dominance. Strategic acquisitions, such as Avalor Technologies and Airgap Networks, have further strengthened its SASE capabilities. These moves position Zscaler to capitalize on the $1.5 trillion global cybersecurity market as reported, where demand for AI-integrated solutions is accelerating.

The Rule of 40 remains a key barometer. For 2025, Zscaler projects revenue of $2.6–2.62 billion and non-GAAP net income per share of $2.81–2.87. If it achieves these targets, its growth rate estimated at ~21% YoY for Q4 2025 and profit margin could stabilize or improve, potentially restoring its Rule of 40 score to pre-2024 levels. Analysts at Mizuho and RBC Capital have reaffirmed bullish ratings, citing Zscaler's "resilient demand for AI and Zero Trust solutions."

Risks and Market Context

The pullback coincides with broader market volatility. In November 2025, the S&P 500 rose 0.1% despite a 1.5% decline in the Nasdaq, driven by concerns over "Magnificent 7" valuations according to market analysis. Zscaler's stock, with a beta of 1.8, has amplified this volatility. While the company's annual recurring revenue (ARR) now exceeds $3 billion according to earnings call data, investors remain cautious about AI spending sustainability and Fed policy uncertainty.

However, Zscaler's balance sheet and product roadmap mitigate some risks. Its cash flow generation-$442.2 million in non-GAAP operating income in 2024 according to financial results-provides flexibility for R&D and M&A. Additionally, the company's focus on high-margin SaaS subscriptions 90% of revenue in 2024) suggests durable cash flow potential.

Conclusion: A Calculated Opportunity

Zscaler's recent pullback reflects near-term execution risks but masks a compelling long-term story. The company's Rule of 40 performance, while slightly weakened, remains robust at 63.4% for 2024. Its strategic investments in AI and Zero Trust, coupled with a strong balance sheet, position it to outperform in a maturing cybersecurity market. For investors willing to tolerate short-term volatility, the current valuation offers a margin of safety, particularly if Zscaler can reaccelerate margin expansion in 2025.

As always, the decision to buy hinges on one's risk tolerance and time horizon. But for those aligned with Zscaler's vision, the pullback may represent a rare chance to enter at a discount to intrinsic value.