|
Proprietary Data Insights Financial Pros’ Top Cybersecurity Stock Searches in the Last Month
|
|||||||||||||||||||||
Financial Pros Eyes’ Turn to Zscaler |
Do you remember when hackers shut down a major natural gas pipeline in the U.S.? Or how about when they disrupted one of the largest meat processors? The market for cybersecurity platforms is set to grow at roughly 10% through 2028. Companies like Zscaler (ZS) employ artificial intelligence and decentralized systems to counter the evergrowing threat. A recent spike in search volume for ZS from financial pros at the end of last week caught our attention, jumping 400% over the daily average. It’s possible Microsoft’s (MSFT) Entra identity and access management expansion announcement caused the jump. After all, it’s directly competing with Zscaler and Palo Alto Networks (PANW). But with annual revenue growth that’s close to 50% every year and expected to continue, we don’t know that this news really dents Zscaler’s outlook. Zscaler’s Business Zscaler, a prominent name in the cloud security space, offers robust solutions to enable secure connections to applications and services for enterprises, independent of the device, location, or network being used. Its Zero Trust Exchange platform (where no one is trusted by default and everything is verified) is its unique value proposition. It is designed to predict, secure, and simplify business experiences in today’s cloud and mobile-centric world.
Source: Zscaler Q1 2023 Presentation To give you an idea of how it all works, Zscaler has a global network of data centers that process all the traffic from its customers. The company uses artificial intelligence and machine learning to analyze and filter traffic, block threats, and enforce policies. Zscaler also uses identity and context to grant access to internal applications without exposing them to the internet. The company is a leader in the field of Security Service Edge (SASE), which combines network and security functions in the cloud. Financials
Source: Stock Analysis Zscaler’s blistering growth continued straight through the pandemic. While it delivers phenomenal gross margins, it has yet to turn an operating profit. However, it generates nearly half a billion in cash from operations. The biggest drag on profitability currently resides in stock-based compensation, worth almost half a billion each year. So really, this is cash story. And with more cash than debt, Zscaler can spend money where it needs. Valuation
Source: Seeking Alpha A lot of these high-growth cybersecurity companies carry lofty valuations based primarily on growth. What we found interesting was how similar ZS was on the price-to-sales ratio compared to Crowdstrike (CRWD) and Fortinet (FTNT). Even Palo Alto Networks (PANW), the most established player, isn’t that different. Notably, ZS runs one of the highest price-to-cash flow ratios with only DataDog (DDOG) worse at 86.3x. Growth
Source: Seeking Alpha ZS outpaced most of its competition for revenue growth, with the exception of CRWD and DDOG looking back at average growth over a three and five year period. We also like the substantial forward EBTIDA and EPS growth expectations for ZS. Profitability
Source: Seeking Alpha ZS runs the highest gross margin save for DDOG. Only PANW and FTNT turn a paper profit. However, ZS has the highest FCF margin, highlighting its fantastic cash generation. Our Opinion 7/10 Zscaler is definitely the best of its peers. The amount of cash it generates, and the growth of that cash is incredible. We can’t say that it’s cheap. But, it’s cheap relative to others in the same industry. This is a volatile stock and one that’s best bought into dips. |
|
News & Insights |
Just Spilled |
|
Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here |