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Scotiabank cuts Zscaler stock target, keeps outperform rating

EditorNatashya Angelica
Published 31/05/2024, 19:36
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On Friday, Scotiabank adjusted its stock price target for Zscaler (NASDAQ:ZS), a company specializing in cloud-based information security, reducing it to $210 from the previous target of $250. Despite this change, the firm maintains a Sector Outperform rating on the stock.

The adjustment follows Zscaler's recent performance update, where the company reported exceeding expectations for the third fiscal quarter and raised forecasts for fiscal year 2024 across all major metrics.

Scotiabank's stance is that Zscaler continues to be a leading narrative in the software sector's growth, particularly within the Secure Access Service Edge (SASE) market. The firm's analysis indicates that the SASE market remains largely untapped and that Zscaler holds a competitive edge.

Concerns have been raised regarding potential headwinds for Zscaler's fiscal year 2025 billings, attributed to changes in sales leadership and an increase in turnover among sales representatives. However, Scotiabank views the conservative guidance for the next fiscal year's billings as a strategic move to set a reasonable performance bar rather than a sign of deeper issues.

In terms of profitability, Zscaler is recognized for maintaining a high standard relative to its growth, boasting a "Rule of 54" — a metric that combines growth rate and profit margins to assess a company's performance. Scotiabank expresses a strong appreciation for this indicator, reinforcing their positive outlook on Zscaler's financial health.

InvestingPro Insights

As we evaluate Scotiabank's revised price target for Zscaler, incorporating insights from InvestingPro can provide additional context for investors. A key InvestingPro Tip highlights that Zscaler holds more cash than debt on its balance sheet, which is a strong indicator of the company's financial resilience. Moreover, another InvestingPro Tip points out that Zscaler's net income is expected to grow this year, aligning with Scotiabank's optimistic view on the company's future performance.

From a data perspective, Zscaler's impressive gross profit margin of 77.55% for the last twelve months as of Q2 2024 underscores the company's ability to maintain profitability, as mentioned by Scotiabank. Despite the recent price volatility, with a 35.26% decline over the last three months, Zscaler's market capitalization remains robust at $23.48 billion. Moreover, the revenue growth of 40.62% during the same period suggests that the company is expanding its market presence effectively.

For readers interested in exploring additional insights, InvestingPro offers more tips for Zscaler, which can be found at https://www.investing.com/pro/ZS. Use the coupon code PRONEWS24 to receive an extra 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the full range of actionable data and analysis available to enhance your investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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