Diverging Signals Cloud Zscaler’s Investment Outlook

The investment case for cloud security leader Zscaler presents a complex puzzle. Despite the company posting a strong quarterly performance and raising its annual guidance, its share price has faced significant downward pressure, creating a notable disconnect between its operational results and market valuation.

The actions of major investors and company executives have not provided a clear directional signal. Recent regulatory filings reveal contrasting moves: Guggenheim Capital increased its stake by 10.5% last quarter, while First Trust Advisors reduced its holding by approximately 20.6%. Furthermore, corporate insiders have been sellers, offloading shares worth more than $12 million over the past 90 days. Market observers often scrutinize such insider sales during a period of share price weakness.

Robust Fundamentals Contrast with Valuation Compression

Zscaler's operational metrics tell a story of strength. On November 25, the company released impressive figures for the first quarter of its fiscal 2026. Revenue advanced between 26 and 28 percent to reach $788 million, surpassing consensus estimates. Adjusted earnings per share came in at $0.96, also exceeding forecasts. Management subsequently raised its full-year outlook, now projecting revenue of approximately $3.29 billion.

Should investors sell immediately? Or is it worth buying Zscaler?

Nevertheless, the equity currently trades roughly 25% below its 52-week peak. A striking valuation gap has emerged relative to sector peer CrowdStrike. Zscaler now trades at a price-to-sales multiple of just 13.7, compared to CrowdStrike's multiple of about 28.8. This discrepancy persists even as Zscaler enhances its platform through strategic acquisitions in AI security and managed detection services.

Analyst Consensus Points to Significant Upside

The majority of market analysts maintain a bullish stance despite the recent correction in the stock price. The average price target from 34 covering analysts falls in the range of $321 to $323. This implies a potential upside of around 33% from current trading levels, suggesting that many experts view the sell-off as an overreaction and retain confidence in the fundamental strength of the business model.

Upcoming quarterly results will be critical in determining whether the company can validate its upgraded guidance and rebuild market confidence. For now, investors are left to weigh robust financial performance against a cautious market sentiment and inconsistent signals from large stakeholders.