Morgan Stanley analysts told investors in a note Wednesday that Zscaler's (NASDAQ:ZS) risk/reward looks unfavorable at current levels.
The analysts, who have an Equal-Weight rating and a $120 price target on the stock, said they expect more rapid topline deceleration for the company as "an increasingly competitive environment prevents Zscaler from capturing nearly half of market growth dollars."
"ZS shares are up +50% over the last month post much stronger-than-expected preliminary FQ3 results. That said, the bear case remains in full force as our checks indicate increasing competition and slower pace of change in enterprise network security architectures coming out of the pandemic," the analysts wrote.
"As such, we see some downside risk, or limited upside at best, to forward consensus revenue estimates, which assume Zscaler captures >35% of market growth dollars over the next 3 years."
The analysts also noted that consensus revenue/billings estimates look high in FY24/25, while margins have upside.
Zscaler shares are down 1% Wednesday, trading around the $133.47 mark.