Zscaler Stock: Buy or Sell?
Summary
Parkev highlights that Zscaler is currently down 20% year-to-date, making it a laggard in a cybersecurity sector where many competitors have seen triple-digit returns. Parkev notes that the company's revenue has grown from $100 million in 2017 to over $3.17 billion recently, though operating profit margins have plateaued at around -5%. Parkev emphasizes that this lack of consistent margin improvement is the primary reason why investors have lowered their valuation tolerance for the stock.
Parkev points out that the broader market for cybersecurity is expanding rapidly as artificial intelligence creates new security risks. Despite the negative price momentum, Parkev believes the stock is fundamentally attractive due to its low risk profile, indicated by a beta of 0.92. Parkev also notes that the current forward price-to-earnings ratio of 33 is near historical lows, providing a potential margin of safety for new investors.
Mentioned Stocks
Reasoning: Parkev advised investors to take profits on Fortinet because the stock price has jumped approximately 100% since Parkev's earlier recommendation. Parkev believes the valuation is no longer as attractive as it was previously. Parkev has downgraded the stock to focus on other opportunities in the sector with better remaining upside.
Reasoning: Parkev recommends taking profits on Palo Alto Networks after the stock price saw triple-digit growth earlier this year. Parkev notes that the valuation has soared significantly, leading Parkev to downgrade the rating. Parkev suggests that investors who followed previous buy recommendations should now look to secure their gains as the risk-reward ratio has shifted.
Reasoning: Parkev identifies Zscaler as an undervalued asset with a calculated fair value of $219 per share compared to its current price of $179. Parkev notes that the forward P/E has compressed significantly from 80 to 33, representing one of the lowest entry points in its history. Parkev also observes that while profitability improvement has hit a plateau at -5%, the tailwinds from AI-driven security risks provide a strong long-term thesis for the stock to eventually gain momentum.