Did Business Growth Power Zscaler's (NASDAQ:ZS) Share Price Gain of 182%?

By
Simply Wall St
Published
November 27, 2020
NasdaqGS:ZS

Unfortunately, investing is risky - companies can and do go bankrupt. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Zscaler, Inc. (NASDAQ:ZS) share price had more than doubled in just one year - up 182%. And in the last week the share price has popped 6.1%. We'll need to follow Zscaler for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

Check out our latest analysis for Zscaler

Zscaler wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last twelve months, Zscaler's revenue grew by 42%. That's a fairly respectable growth rate. The revenue growth is decent but the share price had an even better year, gaining 182%. If the profitability is on the horizon then now could be a very exciting time to be a shareholder. Of course, we are always cautious about succumbing to 'fear of missing out' when a stock has shot up strongly.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NasdaqGS:ZS Earnings and Revenue Growth November 27th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Zscaler in this interactive graph of future profit estimates.

A Different Perspective

It's nice to see that Zscaler shareholders have gained 182% over the last year. The more recent returns haven't been as impressive as the longer term returns, coming in at just 4.1%. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Zscaler , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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