Zscaler Stock Has Fallen 56% From Its High, Even As Revenue Grew 25% Last Quarter

Key Stats for Zscaler Stock

• 52-Week Range: $115 – $337
• Current Price: $147.33
• Street Target Price: around $193
• TIKR Model Target: around $260 (mid case, realized mid-2030)
• Potential Total Return: around 77%
• Annualized Return: around 15% per year
• Max Drawdown: as much as 65% at its low point, around 56% today
• Q3 FY2026 Revenue: $850.5 million, up 25% year over year
• Q3 FY2026 ARR: $3.5 billion, up 25% year over year

Zscaler Fell As Much As 65% While ARR Kept Growing 25% a Quarter

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Zscaler’s (ZS) stock has had a rough year. Shares are down about 56% from their 52-week high, and at one point in the spring, the drawdown reached nearly 49%. That is a steep move for a stock, and it would be reasonable to assume the business behind it has been struggling too.

The numbers tell a different story. In the third quarter of fiscal 2026, revenue grew 25% year over year to $850.5 million, and annual recurring revenue grew at the same 25% pace to $3.5 billion. Non-GAAP operating margin hit a record 23%, up from 22% a year ago. This is not a company losing its footing. It is a company still compounding at a rate most software businesses would envy, while its stock price has moved in the opposite direction.

Part of the explanation is straightforward. Growth stocks across the software sector have seen their multiples compress over the past year, and Zscaler, which traded at a rich valuation heading into 2025, had more room to fall than most. The other part is company-specific, and it shows up clearly in the cash flow numbers.

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Free Cash Flow Peaked at $9.8 Billion in 2023, Then Started Declining

Free cash flow grew steadily from $4.7 billion in 2021 to a peak of $9.8 billion in 2023. Since then, it has declined for two consecutive years, falling to $8.8 billion in 2024 and $7.5 billion in 2025. That is a real trend, not a rounding error, and it is worth understanding rather than glossing over.

Management addressed this directly in the latest earnings release. Full-year free cash flow margin guidance was revised down to around 23%, from a prior expectation closer to 27%, and the company attributed the change to higher capital expenditures.

Some of that spending is tied to the Red Canary acquisition, which is now contributing to ARR growth, and some of it reflects the infrastructure buildout needed to support Zscaler’s expansion into AI-era security products.

Spending ahead of growth is a normal pattern for a company still scaling its platform. It becomes a concern only if the growth doesn’t eventually show up in wider margins, which is exactly the assumption worth watching in the quarters ahead.

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TIKR’s Model Sees Zscaler Around $260, More Than 30% Above the Street’s Own Target

TIKR’s mid-case model targets Zscaler at around $260 by mid-2030, implying a total return of around 77% and an annualized return of around 15%. That target is built on revenue growth slowing to around 14% per year on average, well below the 25% pace Zscaler is currently posting, alongside net income margin expanding to around 21%.

In other words, the model does not assume that Zscaler will continue to grow at its current rate. It assumes growth moderates meaningfully while profitability continues to improve, and even under that more conservative growth assumption, the stock still screens as undervalued relative to its current price.

That target also sits well above the Street’s own consensus price target of around $193, which itself implies real upside from the current price near $147. The gap between TIKR’s model and Wall Street’s average target comes down to how much credit each gives Zscaler’s margin trajectory.

Non-GAAP operating margin has moved from 22% to a record 23% in a single year, even as the company absorbed acquisition costs and stepped up infrastructure spending. If that trend continues, the case for the upper end of the valuation range strengthens.

Should You Invest in Zscaler Stock

Zscaler’s drawdown looks more like a multiple reset than a business breaking down. Revenue and ARR are still growing at 25% a year, operating margins just hit a record, and the company is positioning itself early in enterprise AI security, an area with a long runway ahead. The risk worth watching is whether the recent step-up in capital spending pays off in wider margins over time, or becomes a permanent drag on free cash flow. For investors comfortable with that uncertainty, the current price offers a meaningfully wider margin of safety than Zscaler has carried in recent years.

Explore TIKR’s full ZS model and stress-test the revenue and margin assumptions yourself. Access the TIKR Valuation Model for ZS for free →

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!