CRWD has a PS around 60. ZM’s is around 70. ZS has a PS in the mid 30’s.
- Implications of the current price
Crowdstrike and Zoom would need two years of triple-digit growth for their PS ratio’s to get below 20, even if the stock price didn’t go up at all. Zscaler would need just one year. Now, Zscaler isn’t growing at a triple-digit pace. But here’s the thing: what is more likely? That Zscaler’s revenue growth rate slows? Or that Zoom’s and Crowdstrike’s slows? It’s inevitable that Zoom’s and Crowdstrike’s slows! (If you disagree, please comment on why you think it will be different than when SHOP’s triple digit growth slowed: https://discussion.fool.com/consider-2-years-of-growth-at-100-an…) Meanwhile Zscaler’s has increased lately. It was below 50% and has been around or above 60% for three quarters now.
- Implications of the current market cap
Zscaler is presently a $10 billion company. Crowdstrike is at ~18b and Zoom is at ~28b. Think about that! Zscaler can triple and only be about the size Zoom is now! And I think a lot of people would say that Zscaler’s TAM is just as large or larger than Zoom’s. I don’t personally feel like we can put a good number on TAM, and I’m always skeptical when a company states their TAM. But just intuitively, Zscaler seems like a product that could appeal to almost every company in the world, and Zoom could too, but on a lot smaller scale. Zscaler’s customers pay them a lot more money than Zoom’s, at least on average.
Zscaler is down 15% in August, while Crowdstrike and Zoom are basically flat. I don’t see a good reason Zscaler is down, so it’s hard to not like them more than when they were 15% more expensive.
Zscaler still sports a very expensive valuation. It’s roughly the same as OKTA’s (though Zscaler is growing faster and to me, seems like a more impressive product). But there are other companies I like equally (like Elastic - ESTC, which is also growing at ~60%) that have a much, much less expensive valuation (ESTC’s PS is about 21!) Hence, ESTC is an 11% position for me, and ZS, although I’ve added this month, is only about a 4% position.
PS - I hope this is an example of a post with portfolio implications, but that focuses on the companies involved.