This Cloud Security Stock May Be Reaching Dangerous Heights

Zscaler stock is up 23% in the last 12 months

Feb 23, 2022 at 10:41 AM
facebook twitter linkedin


Zscaler, Inc. (NASDAQ:ZS) is slated to release its second-quarter financial results after the market closes tomorrow, Feb. 24. Analysts currently anticipate that Zscaler’s earnings will come in at $0.11 per share in the upcoming earnings report. Ahead of the event ZS is up 1.3% at $258.21.

While ZS looks to have found footing at the $250 level, it's still feeling pressure from several moving averages including the 200-day, and a little further up the 120-day. The stock sports a year-to-date lead of 23.5%, but still suffers a 20.6% deficit for 2022.  

zs chart feb 23

Analysts are optimistic ahead of the event. Of the 23 in coverage, 19 call ZS a "buy" or better. Meanwhile, the 12-month consensus price target of $374.06 is a 45.1% premium to current levels. 

A look at the company's financials shows that the cloud security company has maintained strong revenues and currently has a solid balance sheet with $1.58 billion in cash and $978 million in total debt. Zscaler's revenues have increased 300% since fiscal 2018 and its trailing 12-month revenues are currently up 13% since releasing fiscal 2021 results. In addition, Zscaler is estimated to see a 78.84% increase in earnings and a 34.6% increase in revenues next year.

Nonetheless, the stock is incredibly overvalued by most fundamental metrics. ZS trades at an extremely rich price-sales ratio of 45.98 and has an inflated forward price-earnings ratio 500.00, already pricing-in multiple years of expansion. Although the cloud security company is producing consistent and meaningful growth, the valuation is unreasonably high, making it likely for Zscaler stock to experience a significant drop in price.

 




 
Special Offers from Schaeffer's Trading Partners