Is ZS a good stock to buy? We came across a bullish thesis on Zscaler, Inc. on The Investor’s Compass’s Substack. In this article, we will summarize the bulls’ thesis on ZS. Zscaler, Inc.’s share was trading at $130.04 as of May 28th. ZS’s forward P/E was 27.17 according to Yahoo Finance.
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Zscaler, Inc. (ZS) is a leading cybersecurity company that pioneered the cloud-native Zero Trust security model, helping enterprises replace legacy firewall- and VPN-based architectures with a globally distributed cloud platform that securely connects users, applications, and data. The company’s core offerings, Zscaler Internet Access (ZIA) and Zscaler Private Access (ZPA), address the growing need for secure access in a world where applications increasingly reside in the cloud and employees work from anywhere.
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Its platform processes more than 500 billion transactions daily across over 160 data centers, creating significant scale advantages and reinforcing its position as a leader in Zero Trust security. Despite reporting a strong fiscal third quarter, including 25% revenue growth to $850.5 million, 25% ARR growth to $3.5 billion, record large-deal activity, expanding margins, and rising free cash flow, the stock declined 31% after management guided for fiscal 2027 revenue and ARR growth of 16%–17%, below investor expectations.
Additional concerns stemmed from the departure of two senior sales leaders, prompting management to adopt a more cautious outlook during the transition. However, the underlying business remains healthy, with 748 customers generating over $1 million in annual recurring revenue, continued success in upselling through its Z-Flex program, and rapid growth across emerging products including data security, Zero Trust Branch, and AI Protect.
Management also believes the accelerating adoption of AI and increasingly sophisticated cyber threats strengthen the long-term demand for Zero Trust architectures. The investment thesis centers on whether the recent slowdown is temporary rather than structural, as Zscaler continues to expand within a large enterprise market opportunity. Following the sharp selloff, the stock trades at a significantly lower valuation, creating a potentially attractive entry point if growth reaccelerates and investor concerns prove overstated.
Previously, we covered a bullish thesis on Rubrik, Inc. (RBRK) by ElectSamsepi0l in December 2024, which highlighted the company’s leadership in cloud-native backup and recovery, strong ARR growth, competitive positioning, and path to profitability. RBRK’s stock price has appreciated by approximately 31.04% since our coverage. The Investor’s Compass shares a similar view but emphasizes Zscaler’s Zero Trust security leadership and the investment opportunity created by a sharp selloff despite continued business momentum.
Zscaler, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 46 hedge fund portfolios held ZS at the end of the first quarter which was 56 in the previous quarter. While we acknowledge the risk and potential of ZS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ZS and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
