Zscaler, Inc. (ZS) shares rose more than 25% during Thursday's session after the cloud software company reported better-than-expected fiscal first quarter financial results.

Key Takeaways

  • Zscaler shares rose more than 25% during Thursday's session after the company reported better-than-expected fiscal first quarter financial results.
  • Analysts have been neutral to bullish on the stock and raised price targets across the board, but some caution that the outperformance may already be priced into the stock.
  • The stock's relative strength index (RSI) is approaching overbought levels, but the moving average convergence divergence (MACD) points to a continued long-term uptrend.

Revenue rose 52.3% to $142.58 million, beating consensus estimates by $10.16 million, and non-GAAP earnings reached 14 cents per share, beating consensus estimates by eight cents per share. The biggest surprise was non-GAAP operating margins coming in at 14%, which was significantly higher than the 2.9% consensus estimate.

Non-GAAP earnings are an alternative accounting method used to measure the earnings of a company. Many companies report non-GAAP earnings in addition to their earnings based on Generally Accepted Accounting Principles (GAAP). These pro forma figures, which exclude "one-time" transactions, can sometimes provide a more accurate measure of a company's financial performance from direct business operations.

Several analysts weighed in Zscaler stock following the financial results. Morgan Stanley maintained an Equal Weight rating and raised its price target to $150, saying that secular tailwinds will continue but outperformance is already priced into the stock. On the other hand, RBC Capital raised its price target to $180, saying that increased guidance from Zscaler appears beatable.

Chart showing the share price performance of Zscaler, Inc. (ZS)
TradingView.com

From a technical standpoint, the stock broke out from near-term trendline resistance toward long-term trendline resistance. The RSI moved into overbought territory with a reading of 73.44, but the MACD remains in a strong bullish uptrend. These indicators suggest that the stock could see some consolidation before resuming its trend higher.

Traders should watch for consolidation between near- and long-term trendline resistance levels. If the stock breaks out, traders could see a move toward fresh highs. If the stock breaks down, traders could see a move toward trendline support at around $150.00.

The Bottom Line

Zscaler shares moved sharply higher during Thursday's session on strong fiscal first quarter financial results. Given far better-than-expected non-GAAP operating margins, analysts raised their price targets on the stock. Traders should watch for some near-term consolidation before Zscaler stock potentially extends its move higher.

The author holds no position in the stock(s) mentioned except through passively managed index funds.