Zscaler (ZS) Stock Could Be Undervalued On Cash Flow Yet Fair On Sales

Zscaler stock has fallen sharply over the past year, yet the latest intrinsic value work using a Discounted Cash Flow (DCF) approach points to a sizeable gap between the market price and what the cash flows suggest the shares could be worth. At the same time, more traditional earnings multiple checks indicate that the current valuation appears broadly in line with peers rather than extreme in either direction.

• Over the past 12 months, Zscaler shares have declined 40.4%, which means anyone looking at the chart sees a stock under clear pressure even before considering the valuation models.
• The launch of Zscaler Agentic SOC, an AI-focused security operations platform, can support expectations for future cash flow growth. The key risk is that AI-driven threats and competitive responses may evolve faster than Zscaler can monetize new security capabilities.
• Broader valuation checks lean toward inexpensive, with a high value score of 5 out of 6 and a Discounted Cash Flow (DCF) estimate that is about 35.7% above the current market level.

The issue now is whether Zscaler's cash flow potential and new AI security offering justify placing more weight on the intrinsic value estimate or on the market's more cautious view after such a steep share price decline.

Scan beyond Zscaler by comparing it with hand-picked cybersecurity and AI infrastructure peers using the 89 AI infrastructure stocks to see which businesses the DCF model flags as potentially mispriced.

Is Zscaler a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here estimates what Zscaler's potential future cash generation could be worth in today's dollars. On the cash side, the business produced last twelve month free cash flow of about $805.9 million, and the model assumes that this stream continues to grow rather than shrink over the coming decade. Those projections result in an estimated intrinsic value of roughly $258 per share.

Compared with the current market price, the DCF output suggests Zscaler is about 35.7% undervalued, which is a wide gap for a stock already under pressure. The launch of Zscaler Agentic SOC, an AI focused security operations platform, helps explain why the cash flow model still assigns meaningful value to future threat focused products even as the market prices in execution and competition risk.

On this cash flow view, Zscaler stock appears undervalued relative to what the projected free cash flows suggest it could be worth.

Our Discounted Cash Flow (DCF) analysis suggests Zscaler is undervalued by 35.7%. Track this in your watchlist or portfolio, or discover 31 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Zscaler.

Where Does Zscaler Sit on Sales?

P/S works well for Zscaler because investors often anchor on revenue for high reinvestment software businesses that are not optimised for near term earnings.

Zscaler currently trades on a P/S of about 8.1x, which is above the broader Software industry average of 3.9x but below a peer group average of 9.6x. The fair P/S ratio from the model sits at roughly 8.7x, which is close to where the stock changes hands today and points to only a modest gap between price and this revenue based yardstick.

That fair ratio already incorporates the company’s growth profile, margins, scale and risk, so the small difference between 8.1x and 8.7x does not signal a clear discount or premium on this metric. Zscaler appears roughly fairly valued on the P/S multiple, with the market pricing its revenue stream close to what the model suggests is reasonable.

See what the numbers say about this price — find out in our valuation breakdown.

The Zscaler Narrative: What Would Justify Today's Price?

Narratives for Zscaler pick up where the valuation work stops. They spell out which paths for Zscaler's growth, profitability and earnings would need to play out for the stock to be worth materially more or materially less than today's price. These narratives sit on Simply Wall St's Community page so you can see the specific future outcomes that lie behind each valuation figure and track whether those conditions still look realistic over time.

Community views on Zscaler are sharply split, with one camp focused on AI driven upside and another worried about execution and valuation risk.

Bull case: 16% undervalued

"Explosive growth in AI/ML traffic and emerging threats is creating new security challenges that Zscaler is rapidly addressing with differentiated AI security and agentic operations products..."

Read the full Bull Case to see why Zscaler could be undervalued

Bear case: 11% overvalued

"Management plans to “invest aggressively” to pursue what it describes as a large market and to extend into areas like agentic operations and AI security..."

Read the full Bear Case to see why Zscaler could be overvalued

Do you think there's more to the story for Zscaler? Head over to our Community to see what others are saying!

The Bottom Line

Zscaler screens as undervalued on the Discounted Cash Flow (DCF) intrinsic value work, while the revenue multiple suggests the current price is roughly in line with peers. That mix points to a stock where the perceived discount depends on how much weight you place on long term cash generation versus nearer term sentiment and sector comparisons. The crux from here is whether Zscaler can turn its AI focused security push into durable free cash flow without stumbling on execution, which would decide whether the current gap is an opportunity or simply compensation for that risk.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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