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Why Zscaler Stock Is Heading Lower Today

By Timothy Green – Aug 19, 2019 at 12:55PM

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The expensive stock is facing some volatility.

What happened

Sharers of cloud security provider Zscaler (ZS) sank on Monday, despite no company-specific news. The stock was down about 8% at 12:20 p.m. EDT; it was down as much as 11.6% earlier in the day.

So what

Shares of Zscaler have soared since the company went public in 2018. Over the past year, the stock has gained nearly 85%, even after Monday's plunge.

A lock.

Image source: Getty Images.

This rally has pushed Zscaler's valuation into the stratosphere, which may have something to do with the volatility plaguing the stock. Zscaler is valued at roughly $9.4 billion, nearly 35 times trailing-12-month sales. The company isn't profitable, although it is free cash flow positive over the past year.

While Zscaler stock is expensive, the company is growing fast. In the fiscal third quarter, revenue surged 61% year over year. Whether that growth is enough to justify the valuation is being tested as the stock heads lower.

Now what

Zscaler is scheduled to report its fiscal fourth-quarter results on Tuesday, Sept. 10, after the market closes. The company expects to report revenue between $81 million and $83 million, along with a small net profit on an adjusted basis. The midpoint of that revenue guidance range implies year-over-year growth of 45.9%.

It's not uncommon for pricey stocks to swing up and down for no concrete reason. For Zscaler investors, these fluctuations don't change the story.

Timothy Green 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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