Should You Buy Zscaler, Inc. (ZS)?

Is Zscaler, Inc. (NASDAQ:ZS) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Zscaler, Inc. (NASDAQ:ZS) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that zs isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus

Let’s analyze the fresh hedge fund action encompassing Zscaler, Inc. (NASDAQ:ZS).

Hedge fund activity in Zscaler, Inc. (NASDAQ:ZS)

Heading into the fourth quarter of 2018, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ZS over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ZS Positions

The largest stake in Zscaler, Inc. (NASDAQ:ZS) was held by Alkeon Capital Management, which reported holding $28.2 million worth of stock at the end of September. It was followed by Driehaus Capital with a $26.3 million position. Other investors bullish on the company included Castle Hook Partners, Maplelane Capital, and Sandler Capital Management.

Now, key hedge funds have been driving this bullishness. Castle Hook Partners, managed by Josh Donfeld and David Rogers, initiated the largest position in Zscaler, Inc. (NASDAQ:ZS). Castle Hook Partners had $23.7 million invested in the company at the end of the quarter. Leon Shaulov’s Maplelane Capital also made a $21.4 million investment in the stock during the quarter. The other funds with brand new ZS positions are Ken Griffin’s Citadel Investment Group, Steve Cohen’s Point72 Asset Management, and Jeffrey Talpins’s Element Capital Management.

Let’s go over hedge fund activity in other stocks similar to Zscaler, Inc. (NASDAQ:ZS). We will take a look at Toll Brothers Inc (NYSE:TOL), NovoCure Limited (NASDAQ:NVCR), nVent Electric plc (NYSE:NVT), and SLM Corp (NASDAQ:SLM). This group of stocks’ market valuations match ZS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOL 32 511675 13
NVCR 20 284799 3
NVT 29 1208395 5
SLM 19 596750 0
Average 25 650405 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $184 million in ZS’s case. Toll Brothers Inc (NYSE:TOL) is the most popular stock in this table. On the other hand SLM Corp (NASDAQ:SLM) is the least popular one with only 19 bullish hedge fund positions. Zscaler, Inc. (NASDAQ:ZS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TOL might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.