Experts Pick Their Top 5 Cybersecurity Stocks

Picture a world where your data is safe, no matter where it roams.

That’s the reality Zscaler (ZS) hopes to build.

The company’s cloud-based security platform acts as a smart checkpoint, scrutinizing every connection request to make sure it’s legit.

With the global cybersecurity market projected to grow at 14.3% annually to over $500 billion by 2030, there’s a lot of runway for a company that protects over 8,650 organizations, including many major Fortune 500 companies.

Like most high-growth companies, one hiccup can cause shares to plummet.

Zscaler’s latest quarterly report continued a worrying trend of declining YoY sales growth, with management projecting things to deteriorate even further in the first quarter of 2025 to 21.8%.

Unsurprisingly, shares plunged over 18% on the news but have recovered about 40% of those losses.

Since then, financial pros have been watching this stock closely, according to our TrackStar data.

They’re most actively reading articles about the latest earnings report.

Are they hoping to gain some additional insights?

Or are they looking for the next catalyst to drive the stock higher?

Here’s what we think.

Zscaler’s Business

Zscaler’s innovative Zero Trust Exchange (never trust and always verify) platform provides secure access to applications and data, regardless of location, device, or network.

Its cloud-native architecture processes over 500 billion transactions daily, offering unparalleled scale and protection against cyber threats, eliminating the need for traditional on-premises security appliances, and simplifying IT infrastructure while enhancing security.

The easiest way to think about it is that Zscaler redirects and inspects traffic through its network of data centers.

Companies like CrowdStrike (CRWD) focus on endpoint security.

This makes Zscaler best suited for organizations looking to secure internet access and implement a zero-trust security model across their network.

The good news is that many companies deploy these software platforms together since they focus on different security aspects.

Source: Zscaler Q4 2024 Investor Presentation

Financials

Source: Stock Analysis

Zscaler’s financial performance has been pretty steady over the years.

The latest growth forecasts are the only hiccup we’ve seen in a long while.

Operating and profit margins have improved; more importantly, the free cash flow margin has also increased.

Stock-based compensation and related payroll taxes, a non-cash item, account for almost $550 million in expenses for 2024.

Without that, net income would be closer to $500 million.

Although cash acquisitions and CAPEX totaled $519 million in 2024, it’s usually closer to $100 million, leaving the company with around $650 million in free cash flow.

With over $2.4 billion in cash on the balance sheet and just $1.2 billion in debt, Zscaler has plenty of capital to invest where it needs.

Valuation

Source: Seeking Alpha

Zscaler’s non-GAAP P/E ratio is reflective of the company’s earnings without the stock-based compensation noted earlier.

This puts it at a discount compared to CrowdStrike or Palo Alto Networks (PANW). However, it is more expensive than Okta (OKTA) and Fortinet (FTNT) on a price-to-earnings basis.

On a price-to-cash flow basis, Zscaler sits in the middle, right in line with Palo Alto Networks and Fortinet. Okta is the only outlier on a discount, while Crowdstrike garners a premium.

Growth

Source: Seeking Alpha

Notably, most of the cybersecurity companies here expect lower sales in the coming year. However, these projections are still in the double digits, and in Zscaler’s case, over 20%.

Impressively, all the companies grew free cash flow by over 10% on average over the past three years. However, Zscaler stands out with 29%, as does CrowdStrike at 34%.

Profitability

Source: Seeking Alpha

Right now, Zscaler’s stock-based compensation is reducing its earnings margins.

So, by comparing it on its free cash flow margin, we see that it’s right in line with Palo Alto Networks and Okta, falling just behind CrowdStrike.

Our Opinion 8/10

Zscaler’s growth may be slowing. However, the annual growth of the natural market size of 15% should act as a floor.

A lot of cybersecurity stocks are volatile at the moment. And we can’t say that they won’t go lower. 

However, there’s plenty of compelling value here if you have enough stomach for the volatility and a longer time horizon.

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