Zscaler stock trimmed a larger morning loss to around 3% Tuesday afternoon. This follows two days of flirting with the buy point of a base.
Tuesday's pick for IBD 50 Growth Stocks To Watch has climbed around 69% so far this year and has outperformed 88% of stocks in Investor's Business Daily's database.
Zscaler was a recent IBD Stock Of The Day. The company sells cloud-based cybersecurity software. It is a leader in corporate network security, including Secure Access Service Edge, or SASE, which is a way of protecting cloud computing.
Zscaler protects data with firewalls, between data centers and the cloud, and connectivity of the Internet of Things, or IoT. The company boasts it blocks over 150 million cyber threats per day and has more than 50 million platform users.
It ranks No. 2 out of 36 stocks in the Computer Software-Security group, which holds the 73rd spot out of the 197 industry groups that IBD tracks.
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Zscaler Stock Retreats From A High
Zscaler stock climbed for five straight weeks following the company's better-than-expected fiscal fourth-quarter results on Sept. 2. It built an early-stage cup base with a 318.46 point. The entry also marks a level not seen since January 2022.
Zscaler stock attempted to break out of the base in the prior two sessions in light volume, but closed below the entry each time. The cybersecurity stock reached 319.89 both days, finding resistance before fading.
Shares pulled back to their 21-day exponential moving average on Tuesday morning, finding support, according to MarketSurge chart analysis. The stock is now about 5% below the buy point.
Its IBD Accumulation/Distribution Rating of B indicates moderate institutional buying over the last 13 weeks. And mutual funds have added shares for four straight quarters, according to the IBD Stock Checkup.
Cybersecurity Name Focusing On AI
Zscaler topped estimates for fiscal fourth-quarter profit and sales estimates.
"We had an outstanding Q4, in which we achieved a new milestone of more than $3 billion of Annual Recurring Revenue while achieving our highest ever operating margin for a quarter," Zscaler's Chief Executive Jay Chaudhry said in its Sept. 2 earnings release.
"We recently delivered AI Guardrails for Public and Private apps, and we are rapidly expanding our AI security portfolio to address the emerging risks of AI models and applications," Chaudhry added.
The company has shown consistent sales growth ranging between 21% and 26% over the last four quarters. Analysts call for an average of around 23% growth for each of the next four quarters.
Zscaler forecast a fiscal first-quarter revenue range of $772 million to $774 million and per-share earnings of about 85 cents to 86 cents, both in line with analysts estimates.
It also gave fiscal 2026 earnings and revenue guidance above views. It sees fiscal 2026 sales of $3.265 billion to $3.284 billion and projects earnings of $3.64 to $3.68 per share.
The company has a three-year sales growth rate of 34%.
Its earnings climbed between 18% and 24% over the past three quarters. The company's profit expansion is tapering after explosive growth of 159% in fiscal 2023, a 45% increase in fiscal 2024, and a 26% rise in fiscal 2025.
Wall Street calls for fiscal 2026 profit to rise by 11%, then by 20% in fiscal 2027.
Zscaler stock has a 96 out of 99 possible IBD Composite Rating.
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