An Analyst Is Scared That Crowdstrike's Stock Action Could Sour This Company's Prospects. But Not Its Hiring Spree

  • Zscaler, Inc ZS will report its quarterly results on September 8, the last of Needham's companies to release July-quarter results. 
  • Analyst Alex Henderson expects a solid beat with a modest raise appropriately accounting for current macro concerns.
  • Henderson writes the stock should react positively to the print, but given the action on the recent illprints of CrowdStrike Holdings, Inc CRWD and others and the current market conditions, it's hard to predict short-term price movement. 
  • Zscaler is likely to be a bit more careful on its outlook and commentary on the earnings call than they were at Zenith Live at the end of June as they were going into their QP, but the basic themes are likely still salient. 
  • ZS sees increased adoption due to weaker market conditions as companies shift resources to platforms and focus on efficacy and cost savings.
  • Henderson reiterated a Strong Buy and price target of $185.
  • He was a long-term buyer of ZS for multi-year out-performance. 
  • While a period of consolidation is possible, Henderson thinks ZS is a unique investment vehicle with exceptional long-term value potential. Zscaler does security right. 
  • The analyst believes this will be a significant company and recommends investors buy these shares, establish a core position, and add on any weaknesses.
  • Henderson notes Zscaler is already profitable, generates solid Free Cash Flow margins, and expects to reach a 20%+ Operating Margin in the longer term.
  • Price Action: ZS shares traded lower by 0.45% at $144.47 on the last check Tuesday.
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