Zscaler Shares Dip Despite Guidance Boost: Time to Buy?
Friday, Dec 6, 2024 4:44 am ET
3min read Zscaler (ZS), a leading cloud-based cybersecurity platform, has seen its shares fall despite raising its guidance for the fiscal year. This begs the question: is it time to buy the dip in Zscaler stock? To answer this, we need to examine the company's recent performance, market sentiment, and future prospects.
Zscaler reported solid revenue growth of 26% year-over-year (YoY) in its fiscal first quarter, topping management's earlier guidance. However, investors seemed disappointed with the company's calculated billings growth, which rose only 13% YoY. This slowdown in billings growth, a key indicator of future revenue growth, raised concerns about the company's outlook.
Despite the billings growth disappointment, Zscaler increased its full-year revenue and adjusted EPS guidance. The company now expects revenue between $2.623 billion and $2.643 billion, up from its previous outlook of between $2.6 billion and $2.62 billion. Adjusted EPS guidance was boosted to a range of $2.94 to $2.99 from $2.81 to $2.87.
Zscaler's trailing-12-month dollar-based net retention rate of 114% indicates strong upselling within its existing customer base. The company is also seeing robust growth in newer products like Zscaler Private Access and AI analytics. With a forward price-to-sales multiple of about 9.6 and a revenue growth rate over 25%, Zscaler may present a buying opportunity.
Analysts remain bullish on Zscaler's growth potential. FactSet analysts expect revenue of $633 million in Q2, with adjusted EPS of $0.68, in line with Zscaler's guidance. The company's increased full-year revenue and adjusted EPS guidance reflect analysts' confidence in the company's growth trajectory.
In conclusion, while Zscaler's stock price fell due to investor disappointment in calculated billings growth, the company's solid fundamentals and increased guidance suggest a potential buying opportunity. With a strong revenue growth rate and an attractive forward price-to-sales multiple, Zscaler is well-positioned for long-term growth. However, investors should monitor the company's billings growth closely and consider the broader market dynamics before making a decision.
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