Zscaler Analyst Predicts 15% Upside For Stock After Post-Earnings Plunge — Retail Doubles Down

• Goldman said the adverse stock reaction is likely due to investors trying to parse the Red Canary contribution, although the company hadn’t quantified it.
• The firm increased its price target to $290 from $283. 
• The updated price target implied 15% upside from Wednesday’s close.

Zscaler, Inc. (ZS) stock received some love from Wall Street after its 13% post-earnings drop in Wednesday’s regular session. For the unversed, the cybersecurity vendor reported robust quarterly results and also issued an upbeat guidance, and retail traders saw the stock reaction as unwarranted.

In a note released late Wednesday, Goldman Sachs weighed in on the potential downside and raised its price target for Zscaler stock.

Lofty Expectations

Goldman Sachs analysts said the adverse stock reaction is likely due to investors trying to parse the contribution from Red Canary — a managed detection and response company Zscaler acquired in August — weighing it against the organic growth and high expectations, according to a summary on The Fly. The analysts noted that the company raised its annual recurring revenue (ARR) and revenue guidance by 1% at the midpoint, while maintaining its earnings before interest and taxes (EBIT) margin outlook.

While maintaining a ‘Neutral’ rating on Zscaler stock, Goldman increased its price target to $290 from $283. The updated price target implied 15% upside from Wednesday’s close.

Analysts Largely Positive

Scotiabank, despite reducing its stock price target for Zscaler to $320 from $334, acknowledged the “very decent” organic ARR performance. The firm, however, said the bottom-line results were slightly underwhelming. The firm believes the risk-reward profile skews positive on Zcaler in the medium term. The firm has an ‘Outperform’ rating on Zscaler.

Needham analysts also reduced the price target to $310 from $350, while maintaining a ‘Buy’ rating. The analysts said the company did not quantify the Red Canary contribution despite the acquisition trending above prior expectations. They expect concrete data to be announced with the second-quarter results.  Needham underscored the stock’s year-to-date outperformance versus peers.

What Retail Feels About Zscaler Stock

Retail users of the Stocktwits platform stayed ‘extremely bullish’ on the stock as of late Wednesday, although climbing a few notches within the territory. The message volume on the stream was ‘extremely high.’

A user hoped that the stock would turn green on Friday.

Another watcher said they have “doubled down” on the stock.

Some also questioned the logic of the sell-off. “This [is] a messy reaction and unexpected decline. Market is green and 13% [pullback] today i think is too much,” said a user.

After experiencing its worst day in more than a year, Zscaler stock is still up about 40% year-to-date.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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