Understanding the Potential Headwinds for Zscaler Stock.

By Chris Stiles • Friday, December 02 12:09 • Permanent Link

One of the standouts of today's afternoon trading session has been Zscaler, which logged a -10.9% drop and underperformed the S&P 500 by -10.5%. The Software stock is now trading at $128.81 per share and is -36.61% below its average target price of $203.19. Analysts have set target prices ranging from $145 to 280 dollars per share, and have given the stock an average rating of buy.

We can use Zscaler's short interest as a proxy for determining general market sentiment regarding the stock. The short interest is the percentage of the share float that represents short positions, meaning that the investor believes the stock will decline in the future. Since ZS's short interest is 7.2%, the market sentiment is mixed on this stock.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.

A possible indicator of market sentiment on a stock (besides its share price, of course) is the portion of institutional investors that make up its shareholders. Institutions such as banks, hedge funds, and wealth managers deploy significant resources towards identifying good investments. If they are invested heavily in a given company's stock, it could mean it's a good investment. Or it could mean the company is being targeted by a takeover attempt.

For what it's worth, institutions own 49.6% of Zscaler's shares, which is an average amount. It means that many institutions are invested, but not to the extent that they would be in a stock such as Apple or Amazon, whose institutional ownership rates hover around 60%. Bear in mind that institutional ownership is just one piece of the puzzle in determining market sentiment, and you should not consider this factor alone in making an investment decision.

To sum up, Zscaler is probably the subject of mixed market sentiment because of an analyst consensus of strong upside potential, a buy rating, an average amount of shares sold short, and only a small number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.

Here's a snapshot of some important facts to keep in mind about ZS:

The stock has trailing 12 month earnings per share (Eps) of $-2.67
Zscaler has a trailing 12 month Price to Earnings (P/E) ratio of -48.2 compared to the S&P 500 average of 15.97
The company has a Price to Book (P/B) ratio of 32.1 in contrast to the S&P 500's average ratio of 2.95
Zscaler is a Technology company, and the sector average P/E and P/B ratios are 26.5 and 5.57 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.