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Zscaler Trades Near 52-Week Low: Time to Hold the Stock or Exit?
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Key Takeaways
Zscaler has fallen 32.4% since Q3'27 results on May 26 and now trades just 8.8% above its 52-week low.
ZS's FY27 preliminary guidance points to 16%-17% y/y revenue and ARR growth, down from the mid-20s before.
Zscaler's AI Protect bookings topped $100M in 12 months, while Z-Flex contract value hit $480M in Q3.
Zscaler, Inc. (ZS - Free Report) has been under heavy pressure since late May, especially following its third-quarter fiscal 2026 results. The stock has plunged 32.4% since its last quarterly results were reported on May 26 and is now trading close to its 52-week low. As of June 10, the stock closed at $124.73, only 8.8% above its 52-week low of $114.62.
Though Zscaler reported better-than-expected third-quarter results, its preliminary guidance for fiscal 2027 turned investors increasingly cautious about its long-term prospects. The company’s fiscal 2027 guidance for both revenues and annual recurring revenues (ARR) indicates a significant growth deceleration, projecting a slowdown to a 16% to 17% year-over-year increase.
This guidance represents a material drop from the company's prior growth trajectory. Zscaler previously hovered around a mid-20s growth rate for both ARR and revenues. Management's initial 2027 outlook implies a deceleration of about 800 to 900 basis points. The company attributed this cooling forecast to sales leadership turnover (including the departure of two key sales leaders), more conservative assumptions for landing new customers, and a slower-than-expected contribution from the Red Canary acquisition.
The recent sell-off extended ZS stock’s year-to-date decline to 44.5%, making it one of the weakest performers in the cybersecurity space. The decline looks even more significant when compared to the broader Zacks Internet – Software industry, which has surged 34.2% over the same period.
The stock has also underperformed its key competitors like Fortinet, Inc. (FTNT - Free Report) , Palo Alto Networks, Inc. (PANW - Free Report) and CrowdStrike Holdings, Inc. (CRWD - Free Report) . Year to date, shares of Fortinet, Palo Alto Networks and CrowdStrike Holdings have rallied 74.8%, 40.3% and 37.8%, respectively.
Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research
However, the recent sell-off may have created an opportunity rather than a reason to exit.
Zscaler’s Strong Fundamentals Remain Intact
Despite the market's reaction, Zscaler's core business remains healthy. The company continues to post robust growth metrics. Third-quarter revenues climbed 25% to $850 million, ARR increased 25% to $3.53 billion, and remaining performance obligations (RPO) rose approximately 30% to $6.5 billion. Large customer adoption also remains strong, with 748 customers generating more than $1 million in ARR and more than 4,000 customers contributing more than $100,000 in ARR.
Profitability continues to improve. Non-GAAP operating income grew 33% year over year, while the company maintained strong cash generation. Management highlighted that Zscaler achieved "Rule of 55" performance year to date, combining strong revenue growth with healthy free cash flow margins.
These numbers suggest that Zscaler's business is not facing a demand collapse. Instead, investors are reacting to a moderation in growth expectations after years of exceptionally rapid expansion.
AI Security Could Become a Major Growth Driver for ZS
One of the biggest reasons to remain invested in Zscaler is its growing role in AI security. Management believes AI is creating one of the strongest growth opportunities in the company's history. As enterprises increasingly deploy AI applications and autonomous AI agents, cybersecurity risks are becoming more complex. Zscaler's Zero Trust architecture is designed to address these emerging threats by hiding applications from attackers and preventing lateral movement within networks.
Zscaler is already seeing strong demand for its AI-focused offerings. AI Protect bookings surpassed $100 million over the past 12 months, reflecting growing customer interest in securing AI workloads and applications.
Zscaler has also strengthened its AI strategy through partnerships with Anthropic and OpenAI and its planned acquisition of Symmetry Systems. These initiatives should help the company expand its capabilities in securing AI agents and enterprise data environments.
Given the early stage of enterprise AI adoption, this market could provide a significant long-term growth runway.
ZS’ Platform Expansion Continues to Drive Growth
Another encouraging sign is Zscaler's ability to sell more products to existing customers. The company's Data Security business has crossed $500 million in ARR and is growing more than 30% year over year. Zero Trust Branch ARR has approximately tripled year over year, highlighting strong adoption beyond the company's traditional offerings.
Perhaps most impressive is the rapid growth of "Zero Trust Everywhere" customers, which use Zscaler's solutions across users, cloud workloads and branch environments. The number of these enterprise customers increased from more than 550 in the second quarter to over 700 in the third quarter.
The company is also benefiting from its Z-Flex program, which encourages customers to commit to larger multi-year contracts. Z-Flex generated more than $480 million in total contract value during the quarter, up more than 60% sequentially. Over the past year, the program has delivered more than $1 billion in contract value.
These trends suggest that customer demand remains healthy and platform adoption is deepening.
Zscaler’s Valuation Now Looks Attractive
The recent correction has significantly reduced Zscaler's valuation premium. The stock currently trades at a forward 12-month price-to-sales (P/S) ratio of 5.27, far below the industry average of 14.75.
Zscaler Forward 12-Month Price-To-Sales Ratio
Image Source: Zacks Investment Research
It also trades at a substantial discount to major peers, including Fortinet, Palo Alto Networks and CrowdStrike. Fortinet, Palo Alto Networks and CrowdStrike trade at forward P/S multiples of 12.48, 16.02 and 25.70, respectively.
This discount appears excessive, given Zscaler's strong revenue growth, expanding profitability and leadership position in Zero Trust security. While growth may slow in fiscal 2027, the company is still expected to deliver mid-to-high teens growth while generating healthy margins and cash flows.
Conclusion: Hold Zscaler Stock for Now
Zscaler's near-term outlook has clearly disappointed investors. However, the company continues to execute well operationally, expand its product portfolio, deepen customer relationships and position itself at the center of the rapidly growing AI security market.
Zscaler’s strong fundamentals, improving profitability, multiple long-term growth drivers and a valuation that has become far more reasonable after the sell-off suggest staying invested in the stock.
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Zscaler Trades Near 52-Week Low: Time to Hold the Stock or Exit?
Key Takeaways
Zscaler, Inc. (ZS - Free Report) has been under heavy pressure since late May, especially following its third-quarter fiscal 2026 results. The stock has plunged 32.4% since its last quarterly results were reported on May 26 and is now trading close to its 52-week low. As of June 10, the stock closed at $124.73, only 8.8% above its 52-week low of $114.62.
Though Zscaler reported better-than-expected third-quarter results, its preliminary guidance for fiscal 2027 turned investors increasingly cautious about its long-term prospects. The company’s fiscal 2027 guidance for both revenues and annual recurring revenues (ARR) indicates a significant growth deceleration, projecting a slowdown to a 16% to 17% year-over-year increase.
This guidance represents a material drop from the company's prior growth trajectory. Zscaler previously hovered around a mid-20s growth rate for both ARR and revenues. Management's initial 2027 outlook implies a deceleration of about 800 to 900 basis points. The company attributed this cooling forecast to sales leadership turnover (including the departure of two key sales leaders), more conservative assumptions for landing new customers, and a slower-than-expected contribution from the Red Canary acquisition.
The recent sell-off extended ZS stock’s year-to-date decline to 44.5%, making it one of the weakest performers in the cybersecurity space. The decline looks even more significant when compared to the broader Zacks Internet – Software industry, which has surged 34.2% over the same period.
The stock has also underperformed its key competitors like Fortinet, Inc. (FTNT - Free Report) , Palo Alto Networks, Inc. (PANW - Free Report) and CrowdStrike Holdings, Inc. (CRWD - Free Report) . Year to date, shares of Fortinet, Palo Alto Networks and CrowdStrike Holdings have rallied 74.8%, 40.3% and 37.8%, respectively.
Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research
However, the recent sell-off may have created an opportunity rather than a reason to exit.
Zscaler’s Strong Fundamentals Remain Intact
Despite the market's reaction, Zscaler's core business remains healthy. The company continues to post robust growth metrics. Third-quarter revenues climbed 25% to $850 million, ARR increased 25% to $3.53 billion, and remaining performance obligations (RPO) rose approximately 30% to $6.5 billion. Large customer adoption also remains strong, with 748 customers generating more than $1 million in ARR and more than 4,000 customers contributing more than $100,000 in ARR.
Profitability continues to improve. Non-GAAP operating income grew 33% year over year, while the company maintained strong cash generation. Management highlighted that Zscaler achieved "Rule of 55" performance year to date, combining strong revenue growth with healthy free cash flow margins.
These numbers suggest that Zscaler's business is not facing a demand collapse. Instead, investors are reacting to a moderation in growth expectations after years of exceptionally rapid expansion.
Zscaler, Inc. Price, Consensus and EPS Surprise
Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote
AI Security Could Become a Major Growth Driver for ZS
One of the biggest reasons to remain invested in Zscaler is its growing role in AI security. Management believes AI is creating one of the strongest growth opportunities in the company's history. As enterprises increasingly deploy AI applications and autonomous AI agents, cybersecurity risks are becoming more complex. Zscaler's Zero Trust architecture is designed to address these emerging threats by hiding applications from attackers and preventing lateral movement within networks.
Zscaler is already seeing strong demand for its AI-focused offerings. AI Protect bookings surpassed $100 million over the past 12 months, reflecting growing customer interest in securing AI workloads and applications.
Zscaler has also strengthened its AI strategy through partnerships with Anthropic and OpenAI and its planned acquisition of Symmetry Systems. These initiatives should help the company expand its capabilities in securing AI agents and enterprise data environments.
Given the early stage of enterprise AI adoption, this market could provide a significant long-term growth runway.
ZS’ Platform Expansion Continues to Drive Growth
Another encouraging sign is Zscaler's ability to sell more products to existing customers. The company's Data Security business has crossed $500 million in ARR and is growing more than 30% year over year. Zero Trust Branch ARR has approximately tripled year over year, highlighting strong adoption beyond the company's traditional offerings.
Perhaps most impressive is the rapid growth of "Zero Trust Everywhere" customers, which use Zscaler's solutions across users, cloud workloads and branch environments. The number of these enterprise customers increased from more than 550 in the second quarter to over 700 in the third quarter.
The company is also benefiting from its Z-Flex program, which encourages customers to commit to larger multi-year contracts. Z-Flex generated more than $480 million in total contract value during the quarter, up more than 60% sequentially. Over the past year, the program has delivered more than $1 billion in contract value.
These trends suggest that customer demand remains healthy and platform adoption is deepening.
Zscaler’s Valuation Now Looks Attractive
The recent correction has significantly reduced Zscaler's valuation premium. The stock currently trades at a forward 12-month price-to-sales (P/S) ratio of 5.27, far below the industry average of 14.75.
Zscaler Forward 12-Month Price-To-Sales Ratio
Image Source: Zacks Investment Research
It also trades at a substantial discount to major peers, including Fortinet, Palo Alto Networks and CrowdStrike. Fortinet, Palo Alto Networks and CrowdStrike trade at forward P/S multiples of 12.48, 16.02 and 25.70, respectively.
This discount appears excessive, given Zscaler's strong revenue growth, expanding profitability and leadership position in Zero Trust security. While growth may slow in fiscal 2027, the company is still expected to deliver mid-to-high teens growth while generating healthy margins and cash flows.
Conclusion: Hold Zscaler Stock for Now
Zscaler's near-term outlook has clearly disappointed investors. However, the company continues to execute well operationally, expand its product portfolio, deepen customer relationships and position itself at the center of the rapidly growing AI security market.
Zscaler’s strong fundamentals, improving profitability, multiple long-term growth drivers and a valuation that has become far more reasonable after the sell-off suggest staying invested in the stock.
Currently, Zscaler carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.