ZS - 40% growth over 5 yrs = 50x P/S? Guidance is all

[Ported verbatim from: The dirty dozen of bloated tech - a short story - #5 by The_Ni]

Earnings: Feb 24, post-market.

ZScalar seems too hot to short. It has a massive 50x price/sales ratio, based on a projected growth rate of 40% for the next five years. Started my analysis with ZS since they seemed most bloated, and therefore more likely to be susceptible to correction. However, I have not been able to find any data points that suggest any obvious weakness.

Analyst PTs all have upside, with their faith in the revenue growth relying on large contracts coming in for them.

Tipranks sentiment is very bullish.

The SA thought pieces can be found here: Zscaler, Inc. (ZS) Stock Price Today, Quote & News | Seeking Alpha

And Gartner confirmed their status as a market segment leader in Feb 2022.

Now, analyst PTs, sentiment etc. all lag actual news/data, but all this is to say that there doesn’t seem to be anything here that makes this an obvious short.

ZS will have to be their own undoing. If the forward guidance fails to confirm the 40%-over-5-years expectation, this stock will crater so hard. I’ll therefore wait until their earnings, and react accordingly.

3 Likes

Verdict from market: too bloated, despite revenue and EPS beat, and decent guidance. Down ~15% AH.

From SeekingAlpha:

  • Zscaler press release (NASDAQ:ZS): Q2 Non-GAAP EPS of $0.13 beats by $0.02.
  • Revenue of $255.56M (+62.8% Y/Y) beats by $13.69M.
  • Shares -12%.
  • Q3 2022 Guidance : Total revenue of $270 million to $272 million vs. consensus of $257.35M
  • Non-GAAP income from operations of $19 million to $20 million
  • Non-GAAP net income per share of approximately $0.10 to $0.11, assuming approximately 149 million to 150 million common shares outstanding. It compares to consensus of $0.11.
  • FY 2022 Guidance : Total revenue of $1.045 billion to $1.05 billion vs. consensus of $1.01B
  • Calculated billings of $1.365 billion to $1.37 billion
  • Non-GAAP income from operations of $95 million to $98 million
  • Non-GAAP net income per share of $0.54 to $0.56, assuming approximately 149 million to 150 million common shares outstanding, vs. consensus of $0.52.

Was up 10% during regular hours before earnings were released, so this is still popular. Unclear how much this will fall, might find bottom soon.