Photo by Zscaler NASDAQ: ZS stock price fell 30% following its Q3 earnings report and guidance revision, opening up a strong buy-the-dip opportunity. While mixed, the results were not the cause of the decline as much as the spending programs. The company aims to increase spending on AI, hoping to benefit from strong demand.
While near-term headwinds weigh on price action today, long-term growth prospects support the higher prices thesis, and the rebound may come much sooner than the initial price drop suggests.
The stock fell 30% during the day, a huge drop. However, the price of Zscaler increased by almost 60% in the weeks before the release, preparing for a correction. The question is what comes next, and price patterns suggest that a reversal is the most likely outcome. The market has shown enough support between the $120 to $140 range, making the price drop a buying opportunity.
Trading Side Job Offers Under ZS Stocks
Buyers include sales associates. Although analysts lowered price targets, the market overreacted, moving below the lower limit of targets and into deeper price territory, and institutions kept buying. Analysts reaffirmed their sentiment ratings, indicating Average Buy with a bullish bias, and saw a strong double-digit rebound in consensus. The worst case scenario is that sentiment trends continue to limit until later in the year or early 2027, while the best is that catalysts appear as soon as the Q4 financial release and the revision of the 2027 guidance.
The work of the institution is remarkable. The group owns more than 85% of the stock and is buying it in 2026. The group sold in Q3 2025, returned to accumulation in Q4, and then maintained the trend at the beginning of Q2 2026. The possible result is that institutions continue to buy, given the low price point, and support the 2026 lows. The risk is that they start selling, but the growth outlook gives no reason to believe that will happen. Zscaler has emerged as the most important factor in business cloud security, expanding its services, deepening its penetration, and entering new verticals.
Growth Is Impressive, But Cash Flows Are Slowing the Market
Zscaler had a strong fiscal Q3 with revenue growing nearly 25.5% to over $850 million. The record-setting result topped MarketBeat’s reported consensus by 200 basis points, driven by client wins and acquisition gains. Annual recurring revenue grew 25% overall, 21% organically, and 14% from new contracts overall. Margin news was also strong, with adjusted revenue up 30% and adjusted earnings per share (EPS) of $1.08, 700 bps better than forecast, but there was little trouble in the market. Cash flow decreased year-on-year (YOY) due to increased capital expenditure, and capital expenditure is expected to remain high in the coming quarters.
Anyway, the direction is good. While Q4 revenue was forecast a midpoint below consensus, it expects 22% growth and strong margins. Adjusted EPS is forecast above consensus, and strength is expected in full-year results. 2026 revenue growth guidance increased to 24.56% with $4.10 in adjusted EPS compared to consensus of $4.02.
Navigating Zscaler Risks and Catalysts in 2026
The main catalyst for Zscaler this year and next will be the return of free revenue. Accelerated investments in memory, compute, and storage are eating into free cash flow and giving investors reason to worry. The opportunity is for constant recovery and eventual improvement as investments transform growth, scale, and improved profitability. The question is how soon the margin recovery will begin, and that may not happen until as late as 2027.
Execution and profit are among the risks. The company has lost key members of its sales team and it will take time to recover, creating uncertainty about future growth. Meanwhile, the high stock price leaves little room for error, including the lack of integration of Red Canary. Red Canary was expected to be a pillar of growth and so far has failed to accelerate growth. It aims to transform Zscaler into a complete security center, powered by the next generation of AI.
What the market doesn’t understand about Zscaler is that while capital spending is a short-term problem, it’s part of the long-term solution. The Zscaler platform is becoming more important to its users in the quarter, with the acquisition of Red Canary positioning it as a player to go in a very profitable industry. Margin recovery will come, if possible, as Zscaler’s cybersecurity business becomes more focused, with more clients, and more services to drive long-term cash flow and shareholder value.
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