Zscaler (ZS) Undervalued? Coforge AI Security Boosts Outlook

Coforge's new SecureEdge2Cloud Zero Trust solution, built on Zscaler's Zero Trust Exchange, is drawing attention to Zscaler stock. This partnership highlights Zscaler's role in AI-driven security. Zscaler's stock has seen recent volatility, falling 5.3% in one day and 5.5% over the past week. However, it shows an 11.7% return over 30 days and an 18% return over 90 days. Longer-term returns over one, three, and five years have been weak. Many believe Zscaler is undervalued, with its last closing price at $139.27 compared to a fair value estimate of $192.58. This view is based on long-term demand for Zero Trust and AI security. The shift from legacy security to cloud-delivered architectures is gaining momentum, which could boost adoption, revenue, and margins. However, risks include pressure from large cloud providers and questions about sales execution and new customer growth. On a sales-based valuation, Zscaler trades at 7.1 times, which is considered expensive compared to the US Software industry average of 3.5 times. This presents a tension between perceived quality and valuation risk for investors.