Why Zscaler (ZS) is back on investors’ radar

Zscaler (ZS) has drawn fresh attention after reporting strong billings growth, lifting its full-year Annual Recurring Revenue guidance, and benefiting from improving sentiment in software stocks following a peer’s upbeat earnings update.

Zscaler’s recent billings update and raised Annual Recurring Revenue guidance come as the stock trades at US$161.05, with a 1 month share price return of 19.58% but a year to date share price decline of 26.98%. The 3 year total shareholder return of 28.56% contrasts with a 1 year total shareholder return decline of 35.96%, suggesting short term momentum has picked up after a weaker period.

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With Zscaler guiding higher on recurring revenue and the stock still trading below some valuation estimates, the key question is whether the recent rebound leaves more room to run or whether the market is already pricing in future growth.

Most Popular Narrative: 6.7% Undervalued

According to the most followed narrative, Zscaler’s fair value of $172.68 sits above the last close at $161.05, which frames the recent rebound in a different light.

Zscaler is revolutionizing cloud security with the industry’s first Security as a Service platform. Their solutions are used by more than 5,000 leading organizations, including 50 of the Fortune 500.

Curious what supports that valuation gap? The narrative leans heavily on sustained cloud security demand, scale driven margin potential, and a premium profit multiple usually reserved for sector leaders.

According to WallStreetWontons, this fair value view also assumes Zscaler keeps riding themes like zero trust adoption, broader digital transformation, and rising cybersecurity spend tied to AI, while continuing to build on its existing enterprise footprint across the US, EMEA, Asia Pacific and other regions.

Result: Fair Value of $172.68 (UNDERVALUED)

However, this hinges on Zscaler managing intense competition and execution risks, as product missteps or weaker sales performance could quickly challenge that undervaluation story.

Another View: Rich Sales Multiple Versus Peer Group

That 6.7% gap to the $172.68 fair value is only one side of the story. On current sales, Zscaler trades on a P/S of 8.6x compared with 3.5x for the broader US software sector and 7.9x for peers, even though the fair ratio sits at 8.9x. For you, that richer multiple could signal potential reward if the stock holds its premium or added downside risk if sentiment turns.

Before leaning too heavily on any single price target or narrative, it is worth stress testing how that P/S premium might compress or expand under different scenarios, and what that would mean for your own risk tolerance and time horizon. See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With mixed signals on valuation and sentiment, it makes sense to check the underlying data yourself and move quickly to form an independent view using the 2 key rewards and 1 important warning sign

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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.