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Zscaler Soars 45% in 3 Months: Hold the Stock or Book Profits?
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Key Takeaways
Zscaler shares jump 45.1% in three months, outperforming industry peers amid strong financial results.
AI security bookings rose more than 50% sequentially, while Z-Flex bookings exceeded $770M in Q4'26.
ZS faces slowing revenue growth of 17% in FY27, rising capital spending and pressure on cash flow margins.
Zscaler, Inc. (ZS - Free Report) stock has delivered a strong run over the past three months, gaining 45.1% and comfortably beating the 28.5% rise in the broader Zacks Security industry. The rally has also outperformed several major cybersecurity peers, including Fortinet Inc. (FTNT - Free Report) , CrowdStrike Holdings, Inc. (CRWD - Free Report) and Palo Alto Networks, Inc. (PANW - Free Report) . Shares of Fortinet, Palo Alto Networks and CrowdStrike have gained 15.6%, 19.9% and 33.8%, respectively, during the same period.
Zscaler’s 3-Month Price Return Performance
Image Source: Zacks Investment Research
The sharp rally naturally raises an important question for investors: Is it time to lock in gains, or does Zscaler still have enough growth potential to justify holding the stock?
Zscaler’s Strong Financial Results Support the Rally
The company’s recent results suggest that the stock’s gains are backed by solid business performance. In the fourth quarter of fiscal 2026, Zscaler’s revenues jumped 24.9% year over year to $898.2 million. Non-GAAP earnings jumped 33.7% to $1.19 per share, showing that the company is still growing its profits faster than its revenues.
Customer expansion is another positive. Zscaler ended fiscal 2026 with 785 customers generating more than $1 million in annual recurring revenue (ARR). More than half of Fortune 500 companies and above 40% of Global 2000 companies now use its platform.
The company is also benefiting from major cybersecurity trends, including cloud adoption, Zero Trust security and rising demand for protection against AI-related threats.
AI & Zero Trust Could Create Growth Opportunities for ZS
Zscaler’s long-term story is becoming broader than its traditional user-based security business. The company is increasingly targeting workloads, branches, AI applications and AI agents.
AI security stands out as a particularly attractive opportunity. Security for AI bookings increased more than 50% sequentially in the fiscal fourth quarter, following strong growth in the previous quarter. Zscaler is also developing products such as Zero Trust Exchange for Agents and Endpoint AI Security, which are expected to scale in the second half of fiscal 2027.
The company is making similar progress with Zero Trust Everywhere. Enterprises using combinations of Zero Trust Users, Zero Trust Cloud and Zero Trust Branch increased to more than 950 at the end of the fourth quarter of fiscal 2026 compared with more than 700 in the third quarter and 350 a year earlier.
This is an encouraging sign because customers are expanding their use of Zscaler rather than simply adding more users. Non-seat-based, metered products contributed about 30% to new and upsell annual contract value in the fourth quarter and fiscal 2026, while ARR from these offerings more than doubled year over year.
Z-Flex is another positive. The program generated more than $770 million in total contract value bookings in the fiscal fourth quarter, up 60% sequentially. By allowing customers to adopt multiple Zscaler products through flexible contracts, the program can improve customer retention and provide better revenue visibility.
Zscaler’s Valuation Looks Reasonable Despite the Rally
ZS’s valuation also provides some comfort to investors. The stock currently trades at a forward 12-month price/sales ratio of 8.60, well below the Security industry average of 21.28.
Zscaler’s Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The valuation also looks relatively attractive compared with major cybersecurity peers. Fortinet, Palo Alto Networks and CrowdStrike trade at forward P/S multiples of 15.67, 22.76 and 39.28, respectively.
Considering Zscaler’s strong enterprise presence, expanding AI opportunity and growing product portfolio, the stock does not appear excessively valued despite its recent rally.
However, investors should not ignore the risks. Zscaler’s biggest challenge is that its growth rate is slowing. Revenues and ARR both increased 25% in fiscal 2026, but this is significantly below the growth rates achieved during its earlier expansion phase.
More importantly, management expects growth to slow in fiscal 2027, with revenues and ARR growth projected at 17%. The Zacks Consensus Estimate also points to continued moderation, with fiscal 2028 revenue growth expected at 15.8%.
At the same time, Zscaler is spending more to build its AI and broader security platform. Capital expenditure increased to 8.3% of fiscal 2026 revenues from 6.1% in fiscal 2025. Management expects capital spending to remain elevated in fiscal 2027, potentially reaching the low-teen percentage of revenues.
Higher investment is understandable, given the size of the AI security opportunity, but it becomes more important to watch when growth is slowing. The free cash flow margin declined to 23% from 27% a year ago and is expected to be 23-23.5% in fiscal 2027.
Conclusion: Hold Zscaler Stock for Now
Zscaler remains a strong cybersecurity company with a growing presence in AI security, Zero Trust and data security. Its large enterprise customer base, expanding product portfolio and relatively reasonable valuation provide solid reasons to remain invested.
However, the 45% three-month rally has already priced in some of the optimism, while revenue growth is expected to slow and spending remains elevated. Therefore, investors should avoid chasing the stock after its sharp run.
For existing shareholders, holding the ZS stock for now appears to be the better strategy. The company’s long-term opportunities remain attractive, but investors should closely monitor growth trends, margins and cash flow before considering additional purchases. New investors should wait for a better entry point or clearer evidence that Zscaler can reaccelerate growth.
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Zscaler Soars 45% in 3 Months: Hold the Stock or Book Profits?
Key Takeaways
Zscaler, Inc. (ZS - Free Report) stock has delivered a strong run over the past three months, gaining 45.1% and comfortably beating the 28.5% rise in the broader Zacks Security industry. The rally has also outperformed several major cybersecurity peers, including Fortinet Inc. (FTNT - Free Report) , CrowdStrike Holdings, Inc. (CRWD - Free Report) and Palo Alto Networks, Inc. (PANW - Free Report) . Shares of Fortinet, Palo Alto Networks and CrowdStrike have gained 15.6%, 19.9% and 33.8%, respectively, during the same period.
Zscaler’s 3-Month Price Return Performance
Image Source: Zacks Investment Research
The sharp rally naturally raises an important question for investors: Is it time to lock in gains, or does Zscaler still have enough growth potential to justify holding the stock?
Zscaler’s Strong Financial Results Support the Rally
The company’s recent results suggest that the stock’s gains are backed by solid business performance. In the fourth quarter of fiscal 2026, Zscaler’s revenues jumped 24.9% year over year to $898.2 million. Non-GAAP earnings jumped 33.7% to $1.19 per share, showing that the company is still growing its profits faster than its revenues.
Zscaler, Inc. Price, Consensus and EPS Surprise
Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote
Customer expansion is another positive. Zscaler ended fiscal 2026 with 785 customers generating more than $1 million in annual recurring revenue (ARR). More than half of Fortune 500 companies and above 40% of Global 2000 companies now use its platform.
The company is also benefiting from major cybersecurity trends, including cloud adoption, Zero Trust security and rising demand for protection against AI-related threats.
AI & Zero Trust Could Create Growth Opportunities for ZS
Zscaler’s long-term story is becoming broader than its traditional user-based security business. The company is increasingly targeting workloads, branches, AI applications and AI agents.
AI security stands out as a particularly attractive opportunity. Security for AI bookings increased more than 50% sequentially in the fiscal fourth quarter, following strong growth in the previous quarter. Zscaler is also developing products such as Zero Trust Exchange for Agents and Endpoint AI Security, which are expected to scale in the second half of fiscal 2027.
The company is making similar progress with Zero Trust Everywhere. Enterprises using combinations of Zero Trust Users, Zero Trust Cloud and Zero Trust Branch increased to more than 950 at the end of the fourth quarter of fiscal 2026 compared with more than 700 in the third quarter and 350 a year earlier.
This is an encouraging sign because customers are expanding their use of Zscaler rather than simply adding more users. Non-seat-based, metered products contributed about 30% to new and upsell annual contract value in the fourth quarter and fiscal 2026, while ARR from these offerings more than doubled year over year.
Z-Flex is another positive. The program generated more than $770 million in total contract value bookings in the fiscal fourth quarter, up 60% sequentially. By allowing customers to adopt multiple Zscaler products through flexible contracts, the program can improve customer retention and provide better revenue visibility.
Zscaler’s Valuation Looks Reasonable Despite the Rally
ZS’s valuation also provides some comfort to investors. The stock currently trades at a forward 12-month price/sales ratio of 8.60, well below the Security industry average of 21.28.
Zscaler’s Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The valuation also looks relatively attractive compared with major cybersecurity peers. Fortinet, Palo Alto Networks and CrowdStrike trade at forward P/S multiples of 15.67, 22.76 and 39.28, respectively.
Considering Zscaler’s strong enterprise presence, expanding AI opportunity and growing product portfolio, the stock does not appear excessively valued despite its recent rally.
ZS’s Slowing Growth & Higher Spending Remain Concerning
However, investors should not ignore the risks. Zscaler’s biggest challenge is that its growth rate is slowing. Revenues and ARR both increased 25% in fiscal 2026, but this is significantly below the growth rates achieved during its earlier expansion phase.
More importantly, management expects growth to slow in fiscal 2027, with revenues and ARR growth projected at 17%. The Zacks Consensus Estimate also points to continued moderation, with fiscal 2028 revenue growth expected at 15.8%.
At the same time, Zscaler is spending more to build its AI and broader security platform. Capital expenditure increased to 8.3% of fiscal 2026 revenues from 6.1% in fiscal 2025. Management expects capital spending to remain elevated in fiscal 2027, potentially reaching the low-teen percentage of revenues.
Higher investment is understandable, given the size of the AI security opportunity, but it becomes more important to watch when growth is slowing. The free cash flow margin declined to 23% from 27% a year ago and is expected to be 23-23.5% in fiscal 2027.
Conclusion: Hold Zscaler Stock for Now
Zscaler remains a strong cybersecurity company with a growing presence in AI security, Zero Trust and data security. Its large enterprise customer base, expanding product portfolio and relatively reasonable valuation provide solid reasons to remain invested.
However, the 45% three-month rally has already priced in some of the optimism, while revenue growth is expected to slow and spending remains elevated. Therefore, investors should avoid chasing the stock after its sharp run.
For existing shareholders, holding the ZS stock for now appears to be the better strategy. The company’s long-term opportunities remain attractive, but investors should closely monitor growth trends, margins and cash flow before considering additional purchases. New investors should wait for a better entry point or clearer evidence that Zscaler can reaccelerate growth.
Currently, Zscaler carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.