Why Investors Should Avoid Zscaler

Zscaler (NASDAQ: ZS) posted strong fiscal first-quarter results, and management raised guidance. Yet the stock price dropped by 6% after these better-than-expected earnings. And even with a 43% drop from its peak price a few months ago, the company's valuation remains too high.

The cybersecurity vendor continues to profit from the secular growth of its cloud-based security market. And its customers are increasingly using both of its main products: Zscaler Internet Access, a cloud-based gateway to the internet; and Zscaler Private Access, a solution to provide secure access to private networks from anywhere.

As a result, Zscaler's fiscal first-quarter revenue of $93.6 million exceeded the guidance range of $89 million to $90 million, up 48% year over year. And the company posted a non-GAAP (adjusted) operating income of $2.9 million versus an expected loss. In addition, management raised its full-year revenue forecast from a previous range of $395 million to $405 million to an updated range of $405 million to $413 million. And calculated billings, a leading indicator of revenue, are also expected in a higher range of $500 million to $510 million compared with the previous range of $490 million to $500 million.

Source Fool.com