On Tuesday, Zscaler (NASDAQ:ZS), a prominent player in cloud security, experienced a change in stock rating. Rosenblatt has downgraded the company's rating from Buy to Neutral, adjusting the price target to $190.00.
This decision comes ahead of Zscaler's scheduled third-quarter earnings release for the fiscal year 2024, which is set for after the market close on Thursday, May 30th.
The downgrade reflects the analyst's concerns about Zscaler's ability to maintain its accelerated revenue growth into FY25. While recent feedback from Chief Information Security Officers (CISOs) and channel partners indicates a solid quarter, there are rising doubts about the company's growth prospects. The firm's revised projections suggest that the consensus billings and revenue estimates for FY25 may be overly optimistic.
Zscaler remains a robust company, but the analyst points to several factors that could limit its near-term growth potential. These include sales attrition, heightened competition in the expanding mid-market segment, and a limited immediate impact from new products intended to contribute to growth.
The update on Zscaler's rating and price target comes just as the company prepares to share its latest financial performance. Investors and market watchers will be closely monitoring the upcoming earnings report to gauge the company's trajectory and assess the validity of the concerns raised by the analyst.
InvestingPro Insights
As Zscaler (NASDAQ:ZS) gears up for its third-quarter earnings release, investors are looking at various metrics to assess the company's financial health and future prospects. According to InvestingPro data, Zscaler holds a market capitalization of $25.72 billion, yet it trades at a high Price/Book multiple of 26.83, suggesting a premium valuation relative to its book value. The company's revenue growth remains strong, with a 40.62% increase over the last twelve months as of Q2 2024, underlining its capacity to expand its top-line amidst competitive pressures.
Analyzing the company's balance sheet strength, one of the InvestingPro Tips highlights that Zscaler holds more cash than debt, providing it with financial flexibility. Additionally, its impressive gross profit margin of 77.55% demonstrates the company's ability to maintain profitability on its services. These metrics could be particularly relevant for investors considering the concerns raised by Rosenblatt about Zscaler's near-term growth potential.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available on the platform, providing deeper insights into Zscaler's performance and outlook. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the wealth of tips, including expectations for net income growth and profitability forecasts for the current year.
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