Zscaler is a buy; valuation is attractive (slightly undervalued on P/E, fair on DCF) given strong organic fundamentals despite growth slowdown.

The Zscaler management team stated that this is a major driver of demand for the company's products and services. Management is optimistic about its prospects, expecting at least $8 billion in annual recurring revenue by 2031.

To put that in perspective, the company generated just over $3.3 billion in revenue over the past 12 months. Furthermore, management believes that in a positive scenario where agent-based AI continues to proliferate, they could generate up to $10 billion in annual recurring revenue by 2031.

So, does this make Zscaler stock a buying opportunity for long-term investors right now in October?

This is the question I want to answer by combining these recent developments with the company’s long-term performance, weighing them against its valuation, and determining whether it looks like an attractive stock to buy now.

Zscaler has been one of the fastest growing cybersecurity companies in recent years. Its total revenue reached $3.3 billion during the past 12 months. This is up from about $250 million in 2017.

It's a slightly more than 10-fold increase over that period.

As mentioned, management is optimistic that its revenues could reach $10 billion by 2031. Wall Street analysts who follow Zscaler are slightly less optimistic, suggesting that this forecast is ambitious rather than conservative.

In fact, Wall Street analysts who follow Zscaler expect its revenue growth rate to slow significantly to 18% in the current fiscal year, which ends in July 2027, then slow further to 16.5% in the fiscal year ending in 2028.

It then slows further to a growth rate of 16.2% in the fiscal year ending in July 2029, at which point Wall Street analysts expect revenue of $5.3 billion for Zscaler over the past 12 months .

Therefore, analysts who follow Zscaler still expect growth, but not at the level that management anticipates. The good news is that Zscaler's business operates with profitable profit margins.

Management expects gross profit margins of more than 80% , and as for the cash flow to sales ratio, the company achieved 33.7% in the past 12 months, which is a significant improvement since 2019, when the cash flow to sales ratio was less than 10%.

Therefore, I like to see companies that grow their revenues and profit margins simultaneously. This is evidence for me that there is strong organic demand for their products and services, and that they are not growing just because they spend more money in a particular category, or because they advertise more, or hire more people, or offer deals and discounts.

It's none of those things. It is organic revenue growth driven by market demand for the company's products and services. This is what I like to see when I'm evaluating a business and thinking about investing in it .

Zscaler shares are trading at a forward price-to-earnings ratio of 38, which is close to the lower end of what the stock has traded at, according to this valuation metric, several years ago.

The main reason for revaluing the company at a lower level is the slowdown in the growth rate. Remember that in previous years this business was growing much faster, by more than 20%, and analysts are predicting a significant slowdown in revenue growth as industry revenue growth accelerates as a result of the spread of agent AI.

Therefore , these forces have led to a decline in investor sentiment towards Zscaler. But in recent months , the stock price has risen significantly. In fact, after hitting a low of $125 per share, Zscaler's stock rose to over $212 .

I also calculated the fair value of the stock using my discounted cash flow valuation model, which takes into account how much cash flow I expect the company to generate between today and the very long term.

I then discount those estimated cash flows to the present day using the weighted average cost of capital, which takes into account the cost of the company's debt and the cost of equity using the capital asset pricing model.

I put all of that together to arrive at a fair value, which for Zscaler was $203 per share.

This is very close to the current market price of $213, with a difference of only 5% , and is within my safety margin. Therefore, I would say that using my discounted cash flow (DCF) model makes the stock appear to be valued at its fair value.

Using the forward price-to-earnings ratio, I would say the stock appears to be slightly undervalued .

Therefore, I last assessed the business on August 11, informing investors that it did indeed look like a buying opportunity. At that time, the stock was trading between $160 and $170 per share.

It has now risen to over $212 per share . So, it has performed well since my last recommendation.

Today , I will reaffirm my buy rating for Zscaler stock. It is one of the last cybersecurity stocks that I still rate as a buy opportunity because cybersecurity stocks as a whole have risen significantly in 2026.

Zscaler remains one of the few cybersecurity stocks that I still rate as a buying opportunity.