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Zscaler Stock Scaling New Heights
Stock Analysis & Ideas

Zscaler Stock Scaling New Heights

In today’s era, the importance of cloud computing services for enterprise data storage has been recognized significantly, post-pandemic outbreak. Organizations rapidly transitioned to the cloud to adopt remote work to maintain the flow in their businesses, which might otherwise have been impacted by the pandemic-induced restrictions.

Therefore, several companies offering cloud-based applications and tools recorded high demand, as organizations became more aware of the cloud’s benefits. At the same time, increased use of cloud-based infrastructure led to cyber attacks, which created a need for cloud-based security solutions.

Per a Bloomberg report, the global cloud security market is likely to grow from $4.09 billion in 2017 to $12.73 billion by 2022, at a compounded annual growth rate (CAGR) of 25.5%.

Zscaler (NASDAQ: ZS) is an American cloud-based information security company that aids digital transformation. Through its Zscaler Zero Trust Exchange platform, numerous customers are safeguarded from cyberattacks and data loss. Shares of Zscaler have jumped around 86% in the past year.

Recently, after meeting with Zscaler management, Needham analyst Alex Henderson‘s confidence in the company was boosted. He increased the stock’s price target from $245 to $280 (23.3% upside potential) and maintained a Buy rating.

Henderson noted that the recent increase in the number of hacks has accelerated the speed of transition from Network Security to Cloud Direct. ZS’s Cloud Direct model, which is designed to help firms in this shift, has benefitted from the sea change.

Furthermore, the “presidential mandate to move to Zero Trust plays to Zscaler’s architecture,” he added. The Zero Trust IT security model, mandated by the White House, strictly demands identity verification for each individual and device who tries to access resources on a private network.

According to the analyst, pandemic-induced deterioration in macroeconomic conditions started to rebound with the reopening. This led to a rise in spending on security by government entities as well, with digital transformation, cloud direct, and ZTNA (Zero Trust Network Access) architectural changes. Therefore, he believes that Zscaler stands to gain market share in the coming quarter with strong wins in this arena.

Based on Zscaler’s strong results in the fiscal third quarter, and expectations of strong revenue growth of 48% in the July-end quarter (consensus estimate stands at 37%), the 5-star analyst expects another blowout quarter. Additionally, based on the company’s sustained hiring trends, he said that revenue growth is expected to accelerate with the achievement of the long-term target of 20%-22% operating margin in FY24. (See Zscaler stock chart on TipRanks)

Overall, Henderson commented, “We are long-term buyers of ZS for multi-year out-performance. While a period of consolidation is possible, we think ZS is a unique investment vehicle with exceptional long-term value potential. Zscaler does security right. We believe this is going to be a major company, and we recommend investors buy these shares, establish a core position, and add on any weakness.”

On TipRanks, Zscaler is a Moderate Buy based on 12 Buy and 5 Hold ratings. The average Zscaler price target of $240.18 implies upside potential of 5.7% from the current levels.

According to the new TipRanks’ Risk Factors tool for the company, the Zscaler stock is at risk mainly from two factors: Finance and Corporate risk, and Tech and Innovation risk, which contribute 44% and 17%, respectively, to the total risk for the stock. Within the Finance and Corporate risk category, ZS has 28 risks, details of which can be found on the TipRanks website.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your analysis before making any investment.

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