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Why Zscaler Stock Rocketed 43% in March

By Joe Tenebruso – Apr 3, 2019 at 3:05PM

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The cybersecurity specialist is expanding at a rapid clip.

What happened

Shares of Zscaler (ZS -4.50%) soared more than 40% last month, according to data provided by S&P Global Market Intelligence, after the cloud-based cybersecurity company delivered a strong fiscal 2019 second-quarter report.

So what 

Zscaler's revenue surged 65% to $74.3 million, coming in well above Wall Street's expectations of $66.4 million. The company also delivered an adjusted profit of $11.6 million, or $0.09 per share, compared to a loss of $2.8 million, or $0.03, in the prior-year period. This, too, bested analysts' estimates, which had called for an adjusted loss of $0.01 per share. 

In turn, Zscaler boosted its full-year revenue outlook to between $289 million and $291 million, up from a prior forecast of $268 million to $272 million. It also raised its adjusted earnings per share (EPS) target to $0.11-$0.13, up from a loss of $0.01 to $0.03.

"We are seeing success in disrupting the traditional network security market, with a globally distributed cloud security platform that consistently applies policies and protections no matter the device or location," Chairman and CEO Jay Chaudhry said in a press release. "We are increasingly viewed as a strategic foundation to our customers' network and security transformation toward a cloud and mobile first world." 

A digital lock within a digital key

Image source: Getty Images.

Now what 

Zscaler's stock is certainly not cheap, with shares now trading at about 36 times sales. Yet Zscaler has a massive opportunity before it as a leader in cloud-based cybersecurity solutions. With the world becoming more mobile every day, Zscaler is well positioned to grow its revenue at a rapid clip for many years to come. Margins should also continue to improve as the company scales its operations, and management expects to generate consistently positive free cash flow by fiscal 2020. Thus, Zscaler could quickly grow into its current valuation -- and far beyond it over time.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zscaler, Inc. The Motley Fool has a disclosure policy.

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