Has Zscaler (ZS) Fallen Below Fair Value After Its 48% Drop?
Zscaler stock has fallen 48.1% over the past year, yet on Simple Wall St’s checks it now screens as having meaningful upside to its intrinsic value based on a Discounted Cash Flow (DCF) estimate. That sets up a clear tension for investors, with a weak recent share price record on one side and a DCF view of the stock as materially undervalued on the other.
- Over the last year, Zscaler shares declined 48.1%, which means the current valuation is being assessed against a materially lower starting point for investors who bought earlier.
- Heightened focus on cyber threats and Zscaler’s zero trust positioning can support revenue expectations. At the same time, ongoing losses and higher AI infrastructure and hardware costs may limit how much value investors are willing to ascribe to that growth.
- On Simply Wall St’s broader checks, Zscaler scores 5 out of 6 on valuation, which suggests the stock currently leans cheap rather than expensive on these metrics.
The issue now is whether the DCF based intrinsic value and strong valuation score offer enough margin of safety to justify Zscaler’s recent share price level around US$149.94 after such a steep 1 year decline.
Find out why Zscaler's -48.1% return over the last year is lagging behind its peers.
Is Zscaler Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) method estimates what Zscaler is worth today based on its projected future cash generation. For Zscaler, the model uses latest twelve month free cash flow of about $852.3 million and assumes that cash flows continue growing over time rather than shrinking.
Using these inputs, the DCF model arrives at an estimated intrinsic value of about $223.13 per share, compared with the recent share price around $149.94. On this framework, the stock screens as about 32.8% undervalued. The recent focus on higher AI infrastructure and hardware costs, highlighted in news around rising capex needs, helps explain why the market may still be pricing Zscaler below the level that its current cash flows support.
Overall, the DCF analysis suggests Zscaler stock appears undervalued relative to the cash flows analysts expect it to generate.
Our Discounted Cash Flow (DCF) analysis suggests Zscaler is undervalued by 32.8%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.
Is Zscaler Fairly Priced on Sales?
For a high growth, loss making cybersecurity company like Zscaler, the P/S multiple is usually a more useful yardstick than P/E.
Zscaler trades on a P/S of about 7.6x, which is higher than the broader Software industry average of around 3.5x but below the peer group average of roughly 9.7x. A more tailored fair multiple that factors in Zscaler’s growth profile, margins, market cap and risk is about 8.3x, only slightly above where the stock is now.
That modest gap suggests the current P/S already reflects much of what the market knows about Zscaler’s position in zero trust security and its recurring revenue model, without a large premium or discount relative to what the fair ratio implies.
On the P/S multiple alone, Zscaler stock appears to be priced roughly in line with what the fair ratio would suggest.
See what the numbers say about this price — find out in our valuation breakdown.
The Zscaler Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the Zscaler valuation puzzle leaves off by spelling out which paths for Zscaler's growth, margins and earnings would need to play out for the stock to be worth materially more or less than today. Rather than leaning on a single multiple or model, each Narrative lays out the key assumptions behind its fair value view so you can compare those expectations with the company’s actual results over time.
One of the top community narratives on Zscaler: 22% undervalued
"Explosive growth in AI/ML traffic and emerging threats is creating new security challenges that Zscaler is rapidly addressing with differentiated AI security and agentic operations products..."
Read one of the top narratives on Zscaler
Do you think there's more to the story for Zscaler? Head over to our Community to see what others are saying!
The Bottom Line
For Zscaler, the Discounted Cash Flow (DCF) estimate points to meaningful intrinsic value upside, while the P/S view suggests the stock is priced roughly in line with a tailored fair ratio. Together, those signals imply the market is giving Zscaler some credit for its cash generation and growth profile, but not fully reflecting the intrinsic value estimate.
The key question from here is whether Zscaler can sustain cash flows and manage higher AI related infrastructure and hardware costs without eroding its economics. The balance between growth investment and profitability is likely to determine whether today’s valuation discount is attractive or instead reflects ongoing execution risk.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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