Zscaler Receives Neutral Rating with $275 Price Target from Analyst

An analyst at B. Riley has begun covering Zscaler (ZS) and assigned a Neutral rating with a $275 price target. Despite its strong market position in secure access markets, the recommendation suggests investors wait for a price pullback or more clarity on the competitive environment before purchasing shares. Zscaler has robust revenue growth and a strong gross margin, but profitability remains a challenge and insider activity raises concerns.

An analyst at B. Riley Securities has initiated coverage on Zscaler (ZS) with a Neutral rating and a $275 price target. The firm noted that while Zscaler has recently outperformed its peers, investors should wait before buying. B. Riley also highlighted that Zscaler trades at an earnings multiple that is approximately in line with comparable cybersecurity leaders, but advised waiting for a price pullback or greater visibility into the competitive landscape [1].

Zscaler has been a pioneer in the Secure Service Edge market, which is currently replacing remote access on a large scale. The widespread adoption of artificial intelligence applications is beneficial for Zscaler's Zero Trust platform, as noted by B. Riley analyst Erik Suppiger. For the fiscal year 2025, Zscaler is expected to generate 23% year-over-year ARR growth and 26% FCF margins, translating into a Rule of 40 score of 49 [1].

However, Zscaler operates in a highly competitive landscape and already has a high valuation, about 55x the CY27 earnings estimate, which prompted the Neutral rating. The company plans to release its fourth quarter fiscal 2025 financial results post-market on Tuesday, September 2. A consensus estimate expects adjusted earnings per share of $0.80 on revenue of $707.14M [1].

In addition to the recent outperformance, Zscaler has also seen strong momentum in the market, with the stock climbing 50% year-to-date and 38% over the past 12 months. The company's partnership with CrowdStrike and Red Canary further cements its leadership in cloud-native security and signals its ongoing commitment to product innovation [2].

Despite the positive outlook, there are concerns surrounding Zscaler's profitability and insider activity. The company has yet to achieve profitability, and insider selling has raised concerns among investors. However, the analyst at B. Riley believes that the current price already reflects the growth that investors expect from recent developments.

In conclusion, B. Riley's Neutral rating on Zscaler suggests that investors should wait for a price pullback or more clarity on the competitive environment before purchasing shares. The company's strong market position and robust revenue growth are promising, but profitability remains a challenge, and insider activity raises concerns.

References:
[1] https://seekingalpha.com/news/4489205-zscaler-initiated-at-neutral-following-its-recent-outperformance-b-riley
[2] https://simplywall.st/stocks/us/software/nasdaq-zs/zscaler/news/zscaler-zs-how-the-crowdstrike-partnership-impacts-its-valua