ZS - Zscaler: This Is A Dip Well Worth Buying
2024-03-12 18:13:34 ET
Summary
- Zscaler shares have fallen due to concerns about slowing growth and potential margin pressures.
- However, the company's earnings presentation and guidance were misread, and it remains a significant share gainer in the zero trust/SASE space.
- Demand for cybersecurity solutions continues to grow, and Zscaler is well-positioned to benefit from this trend.
- Zscaler has unveiled a number of products based on AI which are being used to identify threats and to create remediation strategies.
- The valuation of Zscaler shares, long a sore point with some investors, has become much more reasonable with the share price compressing.
The case to buy Zscaler shares now
Has the long awaited consolidation trade finally arrived? Tuesday, March 5th, was not a pleasant day on which to hold high growth IT stocks. Apple Inc.'s report (AAPL) of a 24% decline in its iPhone sales in China in the first 6 weeks of this year has taken much of the blame for that day's tech market pullback. Algorithmic trading which dominates markets on a day-to-day basis, has taken Apple's disappointment and sold the so-called Magnificent 7 aggressively. And in turn, this has led to high growth IT shares being significantly pressured with various portfolios in that space down by more than 4%. But somehow the market found its footing, mainly on the back of the strength of shares in the AI sector such as NVIDIA Corporation ( NVDA ) and Super Micro Computer, Inc. ( SMCI ).
This is an article recommending the purchase of Zscaler, Inc. ( ZS ) shares at this price and at this time. But many things in the short term have and will impact the performance of the shares. The shares are highly correlated in the short term with the performance of the tech space, and with the performance of other cybersecurity companies. And perceptions of the macro environment are often a significant factor in the performance of the shares. Inevitably, expectations regarding interest rates and inflation are contributing factors in the valuation of this company and other high-tech businesses. But in the long term, of course, the specific relative operational performance of this company with regard to revenue growth and profitability will determine its valuation.
This is not a market commentary or market strategy post. There have been some high growth IT shares that are associated with AI which have seen a noticeable level of speculation recently. And most companies are just now starting to see growth acceleration based on AI-induced demand. For most software companies, the AI inflection is still months off. This has been a very mixed quarter for tech earnings with some noticeable casualties amongst companies who were recently considered to be stalwarts of consistent growth and rising profitability....
Zscaler: This Is A Dip Well Worth Buying