Can Zscaler’s share price rise higher after the post-earnings spike?

Cloud security company Zscaler’s [ZS] share price could be reaching for the sky after its recent earnings statement exceeded Wall Street expectations — leading analysts to upgrade their forecast.

The California-based firm’s Q4 revenue rose to $197.1m, ahead of the $186.8m expected and up from $125.9m a year ago. Meanwhile, its $0.14 earnings per share comfortably beat the forecast $0.09 and last year’s $0.05.

In addition, the company itself gave upbeat projections. Zscaler expects Q1 revenue of between $210-$212m and adjusted net income at $0.12 per share. It forecasts sustained profitability in the full fiscal year, with sales climbing to between $940-$950m and net income to $0.52 to $0.56 per share.

Those figures — and Zscaler’s current market opportunities — have made analysts bullish about its prospects, with 20 of 27 recommending it as a buy or strong buy, and the other seven hold, according to a survey by MarketBeat.

Zscaler is helping the world work safe

There is certainly a lot for Zscaler’s CEO and founder Jay Chaudhry (pictured above) to be excited about. As the pandemic moved the world online, the sharp increase in demand for cloud-based security services has boosted the company’s share price over 400% in the past 18 months.

Its products are revolutionising both home working and cyber security: it runs the world’s largest secure access service edge (SASE) network, which delivers security from the cloud instead of a local firewall. Its recently launched Zscaler Private Access, which replaces virtual private networks (VPNs) to support remote work. And, as its name suggests, its Zero Trust Exchange platform beefs up security by inherently trusting no user, and therefore detecting the most sophisticated attacks, ransomware, and other unethical movements in the cloud.

“We feel there’s a very big opportunity and we also feel it could be a substantial portion of our business, but it takes time with federal. But we’re very well-positioned” - Zscaler CFO Remo Canessa

As well as seeing a huge rise in corporate customers, Zscaler is likely to be a beneficiary of US president Joe Biden’s recent executive order on cyber security. In the quarter to July, Zscaler added 20 new federal customers and now boasts over 100 government agencies on its client list. It is one of just a handful of companies chosen by the US’s National Institute of Standards and Technology to pilot a zero trust federal cloud service.

“We feel there’s a very big opportunity and we also feel it could be a substantial portion of our business but it takes time with federal,” Zscaler CFO Remo Canessa told investors in September. “But we’re very well-positioned.”

Is the price right for Zscaler’s stock?

By all measures, Zscaler is an expensive stock, with a price/sales ratio of 57.72, an enterprise value/EBITDA ratio of -208.27, and a forward P/E of 291.69.

But cybersecurity ETFs with the greatest Zscaler exposure have outperformed the S&P 500’s 37.9% rise in the 12 months up to 23 September. The Global X Cybersecurity ETF [BUG] (with Zscaler exposure of 7.15%) has returned 50.19% over the same period, and the First Trust Nasdaq Cybersecurity ETF [CIBR] (with Zscaler exposure of 6.31%) has risen 50.5%. Zscaler’s share price — which rose 107.47% over the past year — has also significantly outperformed its main rival Cisco [CSCO], despite the latter’s impressive 49.18% year on year.

Moreover, industry experts believe corporates have only spent a fraction of what is needed to combat the likely rise in cyber attacks over the next few years, a sign that bodes well for Zscaler.