Key Takeaways:
Zscaler (ZS) shares jumped 8.5 percent on May 18, fueled by above-average trading volume, even as underlying estimates for the company’s future earnings have not seen any recent upward revisions.
The rally extends a month of strong performance for the cloud security provider, which has seen its stock climb 19.6 percent over the past four weeks, significantly outpacing the 5.6 percent gain of the Zacks S&P 500 composite. "The key question is: Where could the stock be headed in the near term?" a Zacks.com report noted, highlighting the divergence between the stock's momentum and its stagnant earnings outlook.
While the share price is climbing, earnings projections have remained flat. The consensus earnings estimate for the current quarter stands at $1.00 per share, and the estimate for the current fiscal year is $4.03. For the next fiscal year, the consensus estimate of $4.55 has also been unchanged over the past month. This lack of upward revisions has resulted in a Zacks Rank #3 (Hold) for Zscaler.
In contrast to the neutral outlook from earnings trends, Wall Street analysts maintain a positive view. Based on 45 brokerage firms, Zscaler holds an Average Brokerage Recommendation (ABR) of 1.49, which is between a Strong Buy and a Buy. Thirty-four of those recommendations are "Strong Buy" and two are "Buy." However, Zscaler's valuation is considered premium, with a Zacks Value Style Score of D.
The significant price jump without a corresponding rise in earnings estimates could suggest a potential "bull trap," where the rally may not be sustainable. Investors will be watching for the company's next earnings report to see if the financial results can justify the recent stock price appreciation.
This article is for informational purposes only and does not constitute investment advice.
