Key Takeaways
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Zscaler fell 9.2% on Thursday to $204, down 14% in a week but still 78% above its June low, with 15% upside to the $235 average target.
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At its October 6 investor day, CEO Jay Chaudhry called agentic AI "the most significant opportunity in our company's history."
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Zscaler trades at 41.4x forward earnings versus 22.0x for ServiceNow, which crashed 27% on October 29 yet is expected to grow faster.
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The December 2 report must show net new ARR growing well above the roughly 2% to 7% the full-year guide implies.
Zscaler ( ZS:NASDAQ )is giving back its rally fast.
Shares fell 9.2% on Thursday to $204 as the Nasdaq dropped 5.5%. That's a 14% slide since last Friday, and it pulls the stock back below the $235 average analyst target it briefly topped at the end of October.
The slide started on October 29. Fortinet flagged slower product growth, and ServiceNow ( NOW:NYSE )crashed 27% on weak backlog guidance, dragging security and software names down together.
Even so, Zscaler is up 78% from its June low of $115, and it sits 39% below its 52-week high of $334. So, sell, or load up?
The comeback started with ARR
The rebound began with the fiscal fourth-quarter report on September 3:
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Revenue rose 25% to $898 million, ahead of the $877 million consensus
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ARR grew 25% to $3.77 billion
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Adjusted EPS of $1.19 beat the $1.09 estimate, on a record 24.3% non-GAAP operating margin
The guide was the surprise. Fiscal 2027 adjusted EPS of $4.86 to $4.90 came in above the $4.60 consensus, even with revenue growth slowing to 16.6% to 17.5%. Zscaler then reaffirmed all of it at the October 6 investor day.
From June's trough, the move was nearly straight up until late October:
Even after this week's drop, shares sit well above June's low and far below last year's peak.
Selling the AI security story
At the investor day, Chaudhry described agentic AI as "the most significant opportunity in our company's history." He's backing it with product. Zero Trust Exchange for Agents and Endpoint AI Security are in early access, and management expects both to scale in the second half of fiscal 2027.
The core looks healthier too. Organic net new ARR, excluding the Red Canary acquisition, grew 17% in the fourth quarter to $232 million. Red Canary itself exited the year at $141 million of ARR, and management's longer-term goal is $10 billion of total ARR.
But the revenue line is about to slow…
Analysts expect roughly 17% annual growth over the next two years, well below the 25% Zscaler just posted.
TIKR tracks 46 analysts on Zscaler. How many say "Buy"?
See the full breakdown of Buy, Hold, and Sell ratings on Zscaler, along with Wall Street's revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Zscaler's Analyst Ratings
Paying 41x for 17%
Zscaler trades at 41.4x forward earnings and 8.0x forward revenue. ServiceNow, even after its crash, sits at 22.0x and 5.7x. And analysts expect ServiceNow's revenue to grow about 20.4% a year over the next two years, versus 16.9% for Zscaler.
Compare the two multiples over three years:
Zscaler still commands nearly double ServiceNow's earnings multiple while growing slower.
The ARR math adds pressure. Guidance for $4.396 billion to $4.426 billion of fiscal 2027 ARR implies $625 million to $655 million of net new ARR. That's only about 2% to 7% above the roughly $615 million Zscaler added in fiscal 2026, excluding Red Canary.
Zscaler tends to guide conservatively, and the new AI products land in the back half. Still, the stock prices in more upside than the guide shows.
My take: This week's drop has improved the setup. At 41.4x forward earnings and 15% below the average target, I'd stop trimming and hold. I'd add after a clear beat, since the multiple still leaves little room for a soft quarter.
The December 2 first-quarter report is next. Guidance calls for $935 million to $939 million of revenue and $1.15 to $1.16 of EPS. The real tell is whether net new ARR grows faster than the full-year guide implies.
So what is Zscaler stock actually worth?
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