• Wondering whether Zscaler's current share price lines up with what the business might be worth is a fair question if you are tracking high growth software stocks.
• The stock last closed at US$155.71, with the share price up 11.4% over the past month but down 29.4% year to date and down 46.9% over the past year, which can shift how investors think about both risk and opportunity.
• Recent headlines have focused on Zscaler's role in cloud security and its position among larger cybersecurity providers. This keeps attention on how its business model supports long term demand. At the same time, changes in sentiment toward growth oriented software stocks more broadly have fed into recent price swings.
• Zscaler currently holds a valuation score of 5/6. The rest of this article will walk through what different valuation methods say about that figure while hinting at one approach that can help you connect the numbers to the full investment story at the end.

Approach 1: Zscaler Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects the cash a company could generate in the future and then discounts those projected cash flows back to today to estimate what the business may be worth right now.

For Zscaler, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month Free Cash Flow is about $852.3m. Analyst estimates and subsequent extrapolations suggest Free Cash Flow projections such as $782.6m in 2026 and $1,936.1m in 2030, with additional extrapolated figures extending out to 2035, all in $.

When those projected cash flows are discounted back to today, the model arrives at an estimated intrinsic value of about $227.71 per share. Against the recent share price of $155.71, this output suggests the stock trades at a 31.6% discount, so within this model Zscaler appears undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Zscaler is undervalued by 31.6%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Approach 2: Zscaler Price vs Sales

For companies where earnings are not yet a steady guide, the P/S ratio is often more useful because it compares what investors are paying to the revenue being generated, which tends to be more consistent than earnings for growth focused software stocks.

Expectations for future growth and the level of business risk usually influence what looks like a “normal” or “fair” multiple, with faster growth or lower perceived risk often supporting a higher P/S, and slower growth or higher risk usually pointing to a lower one.

Zscaler currently trades on a P/S ratio of 7.93x. This sits below the Software industry average of 3.88x, but also below the peer group average of 10.22x, which keeps attention on how much growth and margin potential investors are factoring in.

Simply Wall St’s Fair Ratio for Zscaler is 8.55x. This is a proprietary estimate of what the P/S might be given factors like earnings growth, industry, profit margin, market cap and risk profile. Because it blends these company specific inputs, it can be more tailored than simply lining Zscaler up against broad industry or peer averages.

Comparing the current 7.93x P/S with the 8.55x Fair Ratio suggests Zscaler trades below that tailored reference point.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Zscaler Narrative

Earlier the article mentioned that there is an even better way to think about valuation, so this is where Narratives come in as a simple way for you to attach a clear story to your numbers. You can spell out what you believe about Zscaler’s future revenue, earnings and margins, link that story to a financial forecast, and then to a fair value that you can compare with today’s price to decide whether the stock looks attractive or stretched.

On Simply Wall St’s Community page, Narratives are available as an easy tool used by millions of investors. You can see different fair value estimates update automatically when new information such as news or earnings is added, and you can compare perspectives ranging from a more optimistic Zscaler view that targets a fair value of about US$308.83 based on revenue growing about 22.5% a year and margins lifting to around 7.5%, through to more cautious views that anchor closer to a consensus fair value around US$227.67 or even a bearish fair value near US$238.48 that assumes revenue growth closer to 19.7% and a different margin path, so you can decide which story fits your expectations.

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.