Is Zscaler (ZS) Attractively Priced After Recent Share Price Pullback?

• If you are wondering whether Zscaler at around US$220 per share looks expensive or reasonably priced, you are not alone. This article focuses on what the current price might be implying about future expectations.
• The stock has seen a 3.3% decline over the last week and a 9.1% decline over the last 30 days, while still showing a 16.9% return over 1 year and a 110.6% return over 3 years. This naturally raises questions about how much optimism is already built into the price.
• Recent interest in cybersecurity providers like Zscaler has been shaped by ongoing investor focus on cloud based security companies and their role in securing distributed workforces. That context helps explain why the share price has been active over shorter periods, even as longer term returns remain positive.
• Simply Wall St currently gives Zscaler a valuation score of 3/6, which means it screens as undervalued on half of the checks used. We will walk through what that looks like using several common valuation approaches before finishing with a more complete way to think about the stock's value.

Zscaler delivered 16.9% returns over the last year. See how this stacks up to the rest of the Software industry.

Approach 1: Zscaler Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of a company’s future cash flows and discounts them back to today using a required return, giving a single estimate of what the business may be worth right now.

For Zscaler, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is reported at about $854.4 million. Analysts provide explicit free cash flow estimates out to 2030, with Simply Wall St extrapolating beyond the initial analyst horizon using the same cash flow framework.

The ten year projections for free cash flow, all in $, range from $884.2 million in 2026 to $3.8b by 2035, with each year discounted back to present value. Adding these discounted cash flows together, along with the terminal value assumptions embedded in the model, results in an estimated intrinsic value of about $290.03 per share.

Against a current share price around $220, this implies the stock screens as about 23.9% undervalued based on this DCF model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Zscaler is undervalued by 23.9%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

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

Approach 2: Zscaler Price vs Sales

For a business like Zscaler, where investors often focus on revenue rather than current earnings, the P/S ratio is a common way to think about what the market is paying for each dollar of sales. Higher growth expectations and lower perceived risk typically justify a higher “normal” P/S multiple, while slower expected growth or higher risk usually point to a lower one.

Zscaler currently trades on a P/S ratio of 12.41x. That sits above the broader Software industry average of 4.72x and also above the peer group average of 11.39x. On the surface, that suggests investors are paying a premium relative to both the sector and similar companies.

Simply Wall St’s Fair Ratio for Zscaler is 10.70x. This is a proprietary estimate of what the P/S multiple might be, given factors such as the company’s growth profile, profit margins, industry, market cap and key risks. Because it accounts for these company specific inputs, the Fair Ratio can be more informative than a simple comparison with peers or the industry average alone. Against this 10.70x Fair Ratio, the current 12.41x P/S suggests the shares look overvalued on this measure.

Result: OVERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1466 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Zscaler Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about Zscaler, connected to your own forecasts for revenue, earnings and margins. The Simply Wall St platform turns these into a Fair Value you can compare with today’s price. This Fair Value updates automatically as new earnings or news arrive, and can differ widely between investors. For example, one Zscaler Narrative on the Community page currently supports a Fair Value around US$385, while another sits closer to US$251, reflecting very different views on how zero trust security and AI related products might shape the company’s future.

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

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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