Zscaler (ZS) has emerged as a standout in the cybersecurity sector, an industry benefiting from powerful long-term structural growth. Demand continues to surge, driven by remote work, cloud adoption, AI-enabled attacks, and the rising frequency of cyber threats—clear and durable tailwinds.
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At the same time, investor expectations are exceptionally high. Even minor disappointments—whether in revenue growth, guidance, or margins—have sparked sharp volatility. Alonside ZS, cybersecurity stocks and ETFs such as BUG (BUG) and CIBR (CIBR) trade at elevated multiples that leave little room for error.
Specifically for Zscaler, the company has captured enormous enterprise demand thanks to its leadership in a platform approach that transforms fragmented security tools into a single, integrated system. Its flexible model also unlocks massive cross-selling potential. This has created a consistent moat based on a feedback loop of growth and customer stickiness that few competitors can match.
Last week’s Fiscal Q4 results placed Zscaler in elite territory, with the Rule of 40 comfortably exceeding the benchmark, alongside a consistent track record of top-line growth and operational leverage. Given this idiosyncratic advantage, I don’t see its premium valuation multiples as a reason for caution—momentum is strong, and the historical track record lowers the risk of underdelivery. For these reasons, I maintain a Buy rating on Zscaler stock.
Why Zscaler Stands Out in Cybersecurity
To put things in context, Zscaler is a cybersecurity company specializing in a model called Zero Trust Network Access (ZTNA), where no user or device is trusted by default—even if they’re inside the corporate network. This approach is considered a cornerstone of modern cloud security and also a major moat for the company. Once an enterprise integrates ZTNA into its infrastructure (identity, access, devices), removing it becomes painful.
Plus, as more users adopt ZTNA, the more granular the data becomes, improving threat detection and policy enforcement—a feedback loop that creates even more value. That’s why other cybersecurity peers don’t match Zscaler’s deep cloud-native architecture and scalability built over the years.
On top of that, Zscaler is heavily involved in SASE (Secure Access Service Edge), a network security solution for hybrid environments (cloud and on-premise). SASE provides a unified security layer that protects users and apps no matter where they are.
While Zscaler’s momentum has been strong, much of it is fueled by broader market tailwinds, particularly the surge in SASE adoption. Third-party data, from Gartner, projects that 47% of enterprises will adopt SASE by 2027, up from the current 14%. Zscaler leads the ZTNA market with 17.3% mindshare—far ahead of competitors like Broadcom (AVGO) (0.9%)—and since ZTNA is a core part of SASE, the company is perfectly positioned to ride this wave.
Building the Security Platform of the Future
Another key turning point in Zscaler’s thesis is the company’s evolution from a point-solution provider to a full-spectrum cybersecurity platform.
Instead of “forcing” customers to buy all services upfront, Zscaler now offers a flexible Z-Flex plan (inspired by CrowdStrike’s (CRWD) “Falcon Flex”), where companies can start with just a few tools (modules), add more as they grow, and pay based on usage rather than fixed amounts.
The impact has been impressive: Z-Flex drove a 50% sequential growth in total contract value in the most recent quarter (Fiscal Q4 2025). To date, only 30% of data protection customers are using three modules, indicating substantial upside potential for cross-selling. Adoption is also tied to the “Zero Trust Everywhere” model, meaning that no one—even inside the company network—is trusted by default, and every access request is verified. This approach is crucial as more companies adopt hybrid environments (home, office, cloud apps), and Zscaler has essentially implemented this model everywhere.
In short, beyond its leadership in ZTNA, Zscaler has built a unified platform that replaces fragmented tools with a single integrated system. This reduces complexity for customers, makes security easier to manage across the organization, and positions Zscaler as more than just a single-product company—it’s a platform shift.
On the numbers side, Zscaler’s annual recurring revenue (ARR) in Fiscal Q4 came in at $3 billion, surpassing the annual guidance of $3 billion for Fiscal 2025—a 22% year-over-year increase. Platformization is clearly translating into long-term customer commitments. As ARR grows, Zscaler is capturing operating leverage—more revenue without proportional cost increases—driving a 22.4% operating margin in Fiscal 2025 (up from 20% in Fiscal 2024) and a 27% free cash flow margin (roughly flat year-on-year). This results in a Rule of 40 of 49.2%, which is considered elite territory for SaaS companies.
Premium Valuation Supported by Execution
As Zscaler’s GAAP profits are still negative—which is quite common for SaaS companies—evaluating the company based on enterprise value to revenue (EV/sales) makes the most sense. That said, Zscaler still trades at a significant premium, with a forward EV/sales multiple of 12.5x compared to the industry average of just 3.2x.
However, when compared to its largest peers—Palo Alto Networks (PANW) and CrowdStrike, which trade at 12.3x and 21.6x forward EV/sales, respectively—Zscaler is pretty much in line with the main players.
Being a high-multiple company means Zscaler must consistently deliver results to satisfy the market. So far, this hasn’t been an issue: the company has beaten both top and bottom-line expectations for twenty consecutive quarters.
Given this high bar, the initial ~8% drop after Fiscal Q4 earnings—driven by somewhat conservative guidance for Annual Recurring Revenue in Fiscal 2026 of $3.676 billion to $3.698 billion (around 22.7% annual growth)—was understandable. But Zscaler’s strong position in a market experiencing secular growth, combined with its track record of overdelivering, seems to reassure the market that the ARR guidance may be conservative, making the seemingly stretched multiple appear quite fair.
Is ZS a Buy, Hold, or Sell?
Wall Street’s consensus on Zscaler is decidedly bullish: of the 35 analysts covering the stock over the past three months, 29 are bullish and the remaining six are neutral. The average price target stands at $327.71, implying an upside potential of roughly 16.4% from the current share price.
Buy-Grade Resilience Amid Cybersecurity Stocks’ Volatility
Zscaler has proven itself as a leading player in its sector, with strong moats, especially as the company transitions toward platformization. Its growth is strongly supported by cloud migration, the adoption of Zero Trust security principles, and an increasingly distributed workforce. Fiscal 2025 results confirmed the growth story at a healthy pace, along with financial strength evidenced by a Rule of 40 metric well above the benchmark.
Regarding valuation, I don’t think this is the time to wait for further multiple compression. Zscaler deserves to trade at a premium due to its low risk of underdelivering on growth and the secular tailwinds benefiting the cybersecurity market. While the SaaS space remains volatile, Zscaler continues to outperform thanks to its own fundamentals.
That said, I rate Zscaler as a Buy, as the company appears more resilient to crises or economic downturns than many of its peers in the sector.