Where Do Hedge Funds Stand On Zscaler, Inc. (ZS)?

In this article we will analyze whether Zscaler, Inc. (NASDAQ:ZS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Hedge fund interest in Zscaler, Inc. (NASDAQ:ZS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ZS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare ZS to other stocks including Centene Corporation (NYSE:CNC), CRH PLC (NYSE:CRH), and General Mills, Inc. (NYSE:GIS) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a peek at the key hedge fund action regarding Zscaler, Inc. (NASDAQ:ZS).

Do Hedge Funds Think ZS Is A Good Stock To Buy Now?

At the end of September, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in ZS a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Zscaler, Inc. (NASDAQ:ZS). Arrowstreet Capital has a $464.9 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $280.3 million position; 0.7% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise D. E. Shaw’s D E Shaw, and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Zscaler, Inc. (NASDAQ:ZS), around 8.8% of its 13F portfolio. Montanaro Asset Management is also relatively very bullish on the stock, dishing out 3.43 percent of its 13F equity portfolio to ZS.

Judging by the fact that Zscaler, Inc. (NASDAQ:ZS) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management sold off the largest investment of the 750 funds followed by Insider Monkey, totaling about $27.8 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund cut about $9.9 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Zscaler, Inc. (NASDAQ:ZS). We will take a look at Centene Corporation (NYSE:CNC), CRH PLC (NYSE:CRH), General Mills, Inc. (NYSE:GIS), SBA Communications Corporation (NASDAQ:SBAC), Yum! Brands, Inc. (NYSE:YUM), Cloudflare, Inc. (NYSE:NET), and Mizuho Financial Group Inc. (NYSE:MFG). All of these stocks’ market caps are similar to ZS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $981 million. That figure was $1624 million in ZS’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 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. Our overall hedge fund sentiment score for ZS is 71.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on ZS as the stock returned 32.3% since the end of Q3 (through 11/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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