Zscaler (ZS) Stock May Be 25% Undervalued On Fresh Price Target News

Zscaler has had a choppy run, with the stock falling 34.5% over the past year, and that kind of reset naturally puts the focus on whether the current share price still lines up with the cash the business is expected to generate. After a move like that, the central question becomes whether today’s valuation can be explained by its cash flows or whether sentiment has simply swung too far in one direction.

• The share price decline of 34.5% over the past 12 months has reshaped expectations and puts real weight on how the market is pricing Zscaler’s cash flow profile.
• Recent analyst attention, including a higher price target tied to deeper customer relationships and stable dollar-based net retention, may support expectations for stronger and more durable cash generation over time.
• What if you looked at Zscaler through its sales instead? See why Zscaler's 9.4x P/S tells a different valuation story.

The issue now is whether Zscaler’s current market value is properly supported by the cash flows implied by a Discounted Cash Flow (DCF) view.

If you are weighing whether Zscaler’s recent pullback lines up with its cash generation profile, it can help to compare that question across a wider set of 32 high quality undervalued stocks

Is Zscaler a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here looks at the cash Zscaler could return to shareholders over time and then pulls that back to today’s dollars. On this view, the business is anchored by latest twelve month free cash flow of about $805.9 million, with the forecast period assuming that this cash generation continues to grow rather than shrink. That growth profile is reflected in projected free cash flow moving into the low single digit billions of $ over the next decade, which is a very different profile from an early stage firm still burning cash.

The DCF output suggests Zscaler’s estimated intrinsic value sits meaningfully above the current share price of $193.05. Bernstein’s recent decision to lift its price target because of deeper customer relationships and solid net retention helps explain why a cash flow model can justify a richer valuation than the market is currently assigning. For readers who want to see how this gap is quantified in detail, the full DCF breakdown shows the assumptions behind those future cash flow estimates and the implied worth per share. Find out what Zscaler could be worth using our Discounted Cash Flow (DCF) estimate.

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

Simply Wall St Narratives for Zscaler pick up where the DCF leaves off. They spell out which assumptions about Zscaler's growth, margins and earnings would need to hold for the shares to be worth materially more or less than today, and each one anchors a fair value to a specific story about potential catalysts and risks, so you can track over time which version of events is actually unfolding on the Community page.

Community views on Zscaler are split between those who see a long runway in Zero Trust and AI security and those who worry about execution and spending.

Bull case: roughly fairly valued

"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…"

Discover why this Narrative puts Zscaler at roughly fairly valued.

Bear case: 29% 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…"

Explore why this Narrative puts Zscaler at 29% overvalued.

An open question for Zscaler, who is steering the ship and what are they rewarded for?

Valuation only tells part of the story for Zscaler, because the people making capital allocation calls and the way their pay is structured can tilt shareholder outcomes in very different directions. See who runs Zscaler and how they are paid.

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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