1 Growth Stock Down 25% to Buy Hand Over Fist, According to Wall Street

Key Points

• Zscaler is a leader in zero-trust cybersecurity, which is increasingly essential for modern organizations.

• Zscaler's fiscal 2025 revenue came in ahead of management's guidance, and the company's enormous addressable market implies there is plenty of growth ahead.

• The majority of the analysts tracked by "The Wall Street Journal" have given Zscaler stock a buy rating.

• 10 stocks we like better than Zscaler ›

Wall Street analysts don't always get things right, but it can pay to listen when they reach a consensus on a particular stock. The Wall Street Journal tracks 49 analysts who cover cybersecurity powerhouse Zscaler (NASDAQ: ZS), and the majority of them have assigned its stock a buy rating, with none recommending selling.

On Wednesday, Zscaler released a very strong set of quarterly operating results to cap off its fiscal year 2025 (which ended on July 31), and its stock popped by as much as 6% in after-hours trading. The stock is still trading 25% below its 2021 record high, when a frenzy in the tech market drove its valuation to an unsustainable level, but Wall Street thinks the recovery is set to continue.

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Here's why the bullish consensus among analysts might be justified.

Image source: Getty Images.

A leader in zero-trust cybersecurity

Businesses continue to shift their operations online using technologies like cloud computing, which allows them to reach more customers and hire workers from a global talent pool. However, this creates several new attack surfaces for hackers to exploit, and these threats can arise at any time of the day, and originate from anywhere in the world.

Zscaler's Zero Trust Exchange plugs those vulnerabilities. It starts at the identity layer, where the exchange treats every login attempt as hostile to limit unauthorized access. It analyzes each employee's credentials, the device they are using, and their location to determine if it's really them trying to access the corporate network, or if their login information has been compromised. This is ideal in the era of remote work because many staff members aren't physically present in the office.

For added security, the Zero Trust Exchange only connects employees to the digital applications they specifically need for their jobs. Therefore, even if a malicious actor breaches the security layer, they can't move laterally across the network or access other valuable assets. But it doesn't stop there, because Zscaler is trying to create a "Zero Trust Everywhere" world where every facet of an organization is governed by the zero-trust architecture.

To help achieve this, the company added a new segment to its platform last year called Zero Trust Branch, which runs every warehouse, retail location, and device owned by an organization through the Zero Trust Exchange, to isolate it from a cybersecurity standpoint. That means if one of those assets is breached, the attackers can't compromise the rest of the organization.

Zscaler's goal was to convince 390 organizations to adopt the Zero Trust Everywhere approach by the end of fiscal 2026. It ended fiscal 2025 with over 350, so it's comfortably on track. But since the company has over 9,400 total customers, there are still thousands of potential candidates for this next-generation approach to cybersecurity.

Zscaler generated more revenue than expected in fiscal 2025

Zscaler generated $2.67 billion in revenue during fiscal 2025, which was up 23% from the prior year. It was above management's most recent forecast of $2.66 billion, which was raised three times throughout the fiscal year.

Zscaler probably could have grown its top line even faster during fiscal 2025, but it prioritized profitability by carefully managing costs. The company still lost $41.4 million during the year on a GAAP (generally accepted accounting principles) basis, but that was a 28% reduction from its year-ago loss.

After excluding one-off and non-cash expenses like stock-based compensation, Zscaler was actually profitable to the tune of $535.8 million in fiscal 2025, improving on its year-ago profit by 29%. This adjusted (non-GAAP) metric is the company's preferred way to measure its bottom line, because it's often a better reflection of how much actual money the business is generating.

Wall Street is bullish on Zscaler stock

The Wall Street Journal tracks 49 analysts who cover Zscaler stock, and 30 have assigned it a buy rating. Six others are in the overweight (bullish) camp, while 13 recommend holding. None of the analysts recommend selling.

The analysts have an average price target of $318.26, which implies a potential upside of 13% over the next 12 to 18 months. The Street-high target of $385 suggests 37% upside might be possible instead, and it would place Zscaler stock within a stone's throw of its 2021 record high of around $393.

Zscaler's price-to-sales (P/S) ratio peaked at over 60 during 2021, which was an unsustainable valuation. But the company's significant revenue growth since then, combined with the 25% decline in its stock, has pushed its P/S ratio down to a more palatable level of 16.5. That places Zscaler right between two of its main rivals, Palo Alto Networks and CrowdStrike:

CRWD PS Ratio data by YCharts

In my view, that means Zscaler stock is neither cheap nor expensive. But paying fair value for a stock isn't necessarily a bad thing if there is significant long-term growth potential, which seems to be the case here. Zscaler values its addressable market at $96 billion, so it has barely scratched the surface of its opportunity based on its fiscal 2025 revenue.

Therefore, Wall Street's price targets might even be too conservative over the long run, so Zscaler stock could be a great buy right now.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.