How to Play Zscaler Stock After Upbeat Q2 Earnings Performance

Zscaler, Inc. ZS has gained solid momentum following its second-quarter fiscal 2025 earnings release, rising 7.7% since March 5. The cybersecurity giant exceeded expectations, posting earnings of 78 cents per share, 13% above the Zacks Consensus Estimate, while revenues surged 23.4% year over year to $647.9 million.Zscaler, Inc. Stock Price, Consensus and EPS Surprise Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. QuoteWith the stock rebounding strongly, investors now face a critical decision — should they continue holding Zscaler or take profits? Given the company’s market leadership in Zero Trust security, improving financials and attractive valuation, holding on to Zscaler remains the best strategy.YTD ZS Stock Price Return PerformanceImage Source: Zacks Investment ResearchARR and Billings Growth Builds Zscaler’s Market StrengthZscaler’s revenue momentum is supported by its strong annual recurring revenues (ARR), which grew 23% year over year to surpass $2.7 billion in the second quarter. This consistent growth highlights the company’s ability to retain and expand its enterprise customer base as businesses increasingly prioritize Zero Trust security solutions.Zscaler also reported total billings of $743 million, up 18% year over year, with unscheduled billings — comprising new upsell and renewal deals — rising more than 25%. This acceleration suggests Zscaler’s ability to lock in long-term contracts, which will sustain its growth trajectory. Management remains confident in achieving $3 billion in ARR by the end of fiscal 2025, reinforcing its leadership in the cybersecurity sector.Zscaler’s Leadership in Zero Trust Security Drives AdoptionZscaler has firmly established itself as a frontrunner in the rapidly growing Zero Trust security market, which Fortune Business Insights forecasts will expand at a 16.7% CAGR through 2032. As businesses shift away from legacy firewall-based security models, Zscaler’s Zero Trust Exchange platform offers a scalable, cloud-native solution that eliminates the need for traditional network security infrastructure.In the second quarter, Zscaler’s "Zero Trust Everywhere" strategy saw robust adoption, with more than 130 enterprises implementing the framework. A notable example includes a Fortune 50 energy company, which onboarded 25,000 users in a multi-million-dollar deal. The company’s Zero Trust Branch initiative also gained traction, with 57% of new customers in the second quarter being first-time Zscaler adopters. These trends indicate that Zscaler is successfully expanding its customer base while maintaining strong retention rates.Zscaler’s innovation remains a key growth driver. The company’s recent AI-powered threat detection, Zero Trust SD-WAN and 5G security solutions further solidify its competitive edge. As enterprises face increasing cyber threats, Zscaler is well-positioned to capitalize on the growing demand for advanced security solutions.Zscaler’s Stock Valuation Still Looks ReasonableDespite the stock’s recovery in 2025 — up 15.7% year to date — Zscaler still trades at an attractive valuation relative to its peers. While the Zacks Security industry boasts an average price-to-sales (P/S) ratio of 12.95, Zscaler is trading at a discounted 10.82 multiple.ZS Forward 12-Month P/S RatioImage Source: Zacks Investment ResearchFor investors looking to gain exposure to the cybersecurity sector, Zscaler presents a more affordable entry point compared to high-flying competitors like CrowdStrike CRWD, Palo Alto Networks PANW and Fortinet FTNT, which trade at P/E multiples of 16.84X, 12.01X and 11.27X, respectively. Given its market leadership and continued execution, this valuation discount enhances its long-term appeal.Slowing Growth Rates Raise ConcernsWhile Zscaler’s revenue growth remains solid, its decelerating pace is a notable concern. In the second quarter, revenues increased 23% year over year, which is lower than the 30%+ growth rates the company recorded in previous fiscal years.Zscaler’s fiscal 2025 guidance projects a 22% revenue growth rate, down from 34% in fiscal 2024. Additionally, the Zacks Consensus Estimate suggests that the fiscal 2026 revenue growth could slow further to 19.7%.This slowdown is something investors should monitor closely. While cybersecurity spending remains strong, competition in the Zero Trust space is heating up, and customers are taking longer to finalize large deals.Conclusion: Hold ZS Stock for NowZscaler’s strong financial performance, leadership in Zero Trust security and improving profitability make it a compelling stock to hold. While slowing revenue growth is a concern, the company’s expanding market share, AI-driven innovation and increasing ARR provide a solid foundation for long-term gains.Currently, Zscaler carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Fortinet, Inc. (FTNT): Free Stock Analysis Report Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report Zscaler, Inc. (ZS): Free Stock Analysis Report CrowdStrike (CRWD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks