- Shares were up while markets were off sharply on Monday
- Stock approaching a cup-with-handle entry point of 158.84
- Relative Strength Rating is 97 out 99; RS line near new highs
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Cup with Handle
A positive chart pattern named such because it resembles the outline of a coffee cup with a handle. The pattern can last from seven weeks to as long as a year, but most are three to six months.
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Zscaler stock is the IBD Stock of the Day as the cybersecurity firm sets up in a cup-with-handle base. Zscaler’s cloud-based computer security services have thrived amid the shift to a work-from-home economy, but the sustainability of its revenue and billings growth is key.
Zscaler stock has shot up some 220% this year. The cybersecurity stock’s valuation soared amid the coronavirus emergency and corporate shift to remote work.
San Jose, Calif-based Zscaler (ZS) provides cloud-based cybersecurity services via 150 data centers worldwide. Zscaler customers route their business workloads and app traffic to the data centers. There, Zscaler’s security software checks data traffic for malware.
On a rough day for the market, Zscaler shares still managed a gain of 1.3% to 149 on Monday.
Zscaler Stock: The Debate Over Sustained Growth
But the cybersecurity stock sold off heading into its fiscal fourth-quarter earnings report on Sept. 9.
Zscaler’s revenue for the period rose 46% to $125.9 million, topping views. Billings, a sales growth metric, jumped 55% to nearly $195 million. Shares in Zscaler edged down the next day, even though the company’s 2021 guidance came in above Wall Street targets.
Following Zscaler’s earnings report, Morgan Stanley analyst Keith Weiss shaped the discussion over the cybersecurity stock.
“The debate now shifts to the durability of the current momentum,” Weiss said in a note to clients. “Was the 50%-plus billings growth seen in the prior two quarters the pull-forward of demand to properly secure work from home environments? Or, does it mark the beginning of a more fundamental shift in security architectures away from the network and into cloud-based Zero Trust architectures?”
In a “Zero Trust” model, cybersecurity firms verify the identity of network users and limit access to applications.
Zscaler stock in October advanced, forming the right side of its cup-with-handle base. While work-from-home upside may be built into the stock’s valuation, heavy investments in sales capacity and new products are paying off, say bullish analysts.
Cloud Security Competition Heating Up
“Zscaler should remain positioned for share gains around security transformations,” RBC Capital analyst Matthew Hedberg said in his recent report to clients.
The company garners most revenue from an older product, Zscaler Internet Access, or ZIA. It’s a cloud-based replacement for on-premises web security gateways.
During the quarter, a newer product called Zscaler Private Access, or ZPA, accounted for 10% of revenue and most new customer growth. The ZPA service replaces virtual private networks, or VPNs, that companies typically use to support remote work.
“With the ZIA/ZPA differentiated cloud security architecture, Zscaler overall is seeing increased deal and pipeline generation as the company’s platform has a unique ability to scale and take on more workers,” Wedbush analyst Daniel Ives said in his recent note.
Zscaler Relative Strength Rating
“While increasing competition in the cloud cyberspace (abounds), we believe ZS has a very defendable moat,” he added. Zscaler competes with Palo Alto Networks (PANW), Citrix Systems (CTXS), VMware (VMW) and others.
Zscaler stock holds a Relative Strength Rating of 97 out of a possible 99. In addition, Zscaler stock has an Accumulation/Distribution Rating of B. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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