r/valueinvesting
Zscaler ($ZS) is trading at ~5.2 forward EV/sales
Author argues ZS is undervalued at ~5.2x forward EV/Sales vs cyber peers like PANW, despite 16-17% guided growth.
- ZS appears significantly undervalued relative to its cybersecurity peers based on forward EV/Sales multiples.
- Market overreacted to growth deceleration and management changes, creating an attractive value opportunity.
- The company is facing a notable growth deceleration from ~24% in FY26 to 16-17% in FY2027.
- Recent sales leadership departures and broader SaaS sector weakness continue to pose fundamental risks.
This year SaaSpocalypse and the most recent sales leadership departures in May spooked investors as management guided for 16%-17% growth for FY2027, a deceleration from FY26 \~24% growth.
That resulted in a 30% drop in a single day, and the share price has halved in the past year.
But I think the valuation is interesting, particularly if we compare to cyber peers:
- PANW growing \~14–15% (organically), trades at \~16x forward EV/Sales
- CRWD growing \~24–32% in ARR, trades at \~26x forward EV/Sales
- NET growing \~30–34%, trades at \~29x forward EV/Sales
- OKTA growing \~12%, guided for 9%-10%, trades at \~5.6x forward EV/Sales
- ZS growing 16–17%, trades at \~5.2x forward EV/Sales
PANW is growing at roughly the same rate as ZS's guided deceleration and commands 3x the multiple. Okta is growing at less than ZS, and yet they trade at a similar multiple.
This does seem strange to me.
For Zscaler, I think this multiple for a 16-17% growth is attractive.
Thoughts?
My full analysis: https://economiyaki.substack.com/p/zscaler
I’ve been buying this one as well think it’s best value but idk that it’s as pure a cyber play as the others.
Its SaaS Cyber, I think Cloudflare ($NET) is the biggest threat there with Zero Trust and app protecting solution. ZScaler is also VPN solution, looks good for me but should be a mid-size satelite instead of big core position imo.
We switched from Zscaler to CF at work and it's been fantastic. Now that I'm familiar with the platform, I ported about 10% into NET at $190, considering adding more. Our developers are also using a lot of features, particularly for AI application hosting and delivery.
ZS is the best solution for Zero Trust, it’s better than PANW and CF with threat coverage and functionality, granularity of access it gives to security policies and traffic analysis is far beyond what PANW and CF provides.
Been watching Zs for months. I bought it when it ran earlier this week, thinking it’s finally taking off, and the saas narrative was shifting. Was wrong (thanks YouTube experts). Now a community member of ‘value’. Just like my Now stock, lol.
That's why I stopped watching these YouTubers. I realized I'm smarter than them 😂
Bag holders United
Can I get the recipe for bloody sausage please?
Yes, just your good old SaaS stock.
\- Probably has not generated a single dollar of actual value for the shareholders
\- GAAP negative earnings
\- Growth is slowing
\- Most of the people investing or speculating on this do not use the products or care to understand what they offer and who the competitors are
They all have the same story. They shit cashflow, but dilute even more than that each year in SBC. Sure it’s creating a ton of value, it’s just going to the employees and not you
They have a structural problem IMO. Their selling point to investors is that they see billions of data points, so they are kind of a hub for AI driven zero-trust security system whatever buzzwords. The data points thing is kind of true, and IT and security teams tend to like ZScaler.
The issue is two-fold:
a) PANW and Fortinet are encroaching onto this space. They are much more entrenched in bigger companies. I don't see a corresponding level of offensive moves from ZScaler beyond "we invented zero trust".
b) They STILL have seat based pricing model, with no obvious entry into usage or capacity based pricing models. The issue is that with AI Agents, network traffic PER device is basically going to increase 10x. If they are not able to monetize that traffic, they are not really going to see any tailwinds. I haven't yet seen anything on this from them yet.
I AM slowly accumulating positions in ZScaler because they are pretty undervalued wrt their _potential_. And I do like their CEO. But it's possible the potential never materializes to something real.
The longer they sit at $20B market cap while revenue continues to compound the more likely they get taken out. If PANW paid $25B for cyberark, someone will pay $30B for ZS.
Wouldn’t touch. Competitive industry, competitive sub market, lack of product differentiation. Why wouldn’t revenue growth keep on slowing down if the customer base has many alternatives and can negotiate pricing or consolidate spend to other platforms?
Who cares about EV to sales? This isn't for value investing.... they don't make any money and are in the most hated sector.
Im buying rbrk