I’m putting on my dunce cap here and asking for advice on ZS. I am aware this may come off as sour grapes, as I don’t own it. However, I am really struggling to understand. Their PS ratio is otherworldly…the only time I’ve seen anything like it is with the post-IPO hype for SNAP…when it was trading over $20/share. It’s at under $12/share now.

How high is ZScaler’s PS ratio? It is currently at 33. That’s astounding. Even when Shopify was growing revenue at 100% or close to it, their PS ratio never got over 22 or 23…and I thought that was the highest I’d ever see. Zscaler’s revenue grew 49% last quarter.

They’re not yet profitable, but if they had a net margin of 30%, their PE ratio would be 110. That’s if they had a net margin of 30%! …which would be enviable by even most mature companies.

Also the lockup expiration is 9/12…never know what will happen there, but you have to think some might want to take their money and run.

Let’s take as a given that they are the best company in the cloud security market. I don’t want to bring that into question at all. I’m purely asking about the numbers. And I guess my question is, what is the market seeing that I’m not? Are they going to start growing at near 100% or faster and then do so for years? Because short of that, this valuation makes no sense to me. Simply because there are other stocks to be had for a lot less of a premium.



Hi Bear,

Agreed, ZS shares are not cheap by any stretch of the imagination. Theyve certainly been on a tear of late. I’ve acquired all my shares between $35 and $39.

Certainly tech investors are not buying shares based on any estimate for the this year or next. I believe Bert described those as “polite fiction” lol.

We are looking at a very disruptive technology, coupled with a huge TAM, and near 70% billings growth that may lead to accelerating revenue in the coming quarters.

That said, overcoming the valuation hurdle will be a major challenge for many investors. I would certainly be looking to increase my holdings opportunistically, but I suspect these shares will always be “overvalued”. Perhaps the lock up expiration will provide a chance.

I bough shares right away after reading Bert’s excellent article and ER and CC transcript. I just felt this was one company I did not want to miss out on.



Is the lock up expiration date 12 September? In a previous thread another poster says it is (?) October 2018.




Thanks Branmin.
I was interested to note PVTL (which is also in my P/F) has a lock up date 10/17. Will keep an eye on both these shares.


Regarding lockups…please review the data here:


This should help guide how you manage your purchases…it is not always what you think. For example, most of the stock decline occurs in the 2 weeks leading up to the expiration…not right after expiration:

What does history tell is about stock lockups expirations:


Note there are several older academic studies there. Look over Pandora as an illustrative case…what did we see??

1) The stock price tends to fall BEFORE the lockup actually occurred.
2) Stock price fell 30% from its high
3) Further permanent stock price fall tends to be around 3% after lockup

Look a few others in that article:

UBNT fell 60% over next few months
GRPN fell 50% over next few months
ZNGA fell 45% over next few months

KORS increased in subsequent months

So some of the drop occurs even before the lockup perhaps from the market anticipating the sell off…but may also occur in a more graduated manner in subsequent months.

In the case of MDB, we are already off about 10% from its highs.

So, one can see from the academic papers, that the negative effect of lockup expiration seems small at 1-3% but in thinly traded stocks, this can be much higher and even leading into the lockup period rather than necessarily right after. Note these are studies over many years BUT are largely from 1990’s and 1980’s.

OTOH, you may recall that FB dropped 6% right after the lockup expiration and then the stock soared…presumably because money on sidelines was waiting for the lockup to expire…the stock had declined 45% leading into the lockup date.

Here is another illustrative chart on more recent IPO’s demonstrating that there is more often a decay in stock price leading in to the lockup:


So FWIW, the still leads me to conclude that not being fully invested is the best strategy but getting in nearly at expiration may be the optimal time…though never any guarantees.

Incidentally, in the case of Mongo, it followed this pattern nearly to the decimal point. Hope this helps!



Zscaler is a world wide monopoly that is utterly disruptive with a multiple year advantage over anyone else who may try to replicate what they do along with a networking effect that will only grow.

In addition they are 100% subscription revenue SaaS.

The current valuation is quite justifiable based upon Blue Coat’s acquisition value. As for the valuation going forward, at 50%+ growth per year it comes down quickly, but it still will be at the peak of Shopify multiples going into next year, and then come down to something most of us can stomache two years out.

The valuation does concern me, but I bought into Zs when the price crashed and enterprise value was in the $3 billion range and I bought a ton of it at that time. It has rapidly risen since then.

I am recommending everyone buy it on the fundamentals that are utterly superb, BUT I AM RECOMMENDING THAT NO ONE BUY IT ON THE VALUATION.

This is a clear and textbook and rare Rule Breaker stock that hits every criteria, including overvalued.

ISRG was always overvalued as an example, with a worldwide monopoly and huge moat. Whether or not Zs deserves said is based upon the fundamentals described above. I can only describe why it is valued as it is, not that the valuation is good or bad or just right. I frankly do not know in the end.

Btw I used the all caps above so no one gets the impression that I am recommending they do anything. I was just making the point of fundamentals/valuation and how they work in the opposite direction here. I own a ton of it. I may sell some or all or I may not.

The fundamentals are about as good as you will find anywhere. The valuation…




ZScaler reports next week , should be around $190m P/S =5400/190= 28

SQ has a P/S=31700/1232= 26

I know you are a fan of SQ.

Maybe Zscaler needs a Sarah Friar for you to become a fan. :slight_smile:



This is a clear and textbook and rare Rule Breaker stock that hits every criteria, including overvalued.

ISRG was always overvalued as an example, with a worldwide monopoly and huge moat.

Not remotely true, ISRG had a PE ratio 5 years ago under 22x when it traded at $125.

A big part of the reason it’s gone up to $543 today is that it was so cheaply valued back then.


Bear, fwiw, I agree with your assessment. While I believe in the rule “The best time to buy a fast grower is as soon as you uncover a great one” I also believe that a little common sense (read “valuation” in this case if you so choose) should be considered in cases like this - cases of extreme pricing.

I’m a fan of taking financial statements and projecting them out for 2-5 years under various growth-rate scenarios to see what future RANGE of possibilities might occur. In the case of AZ, I can’t make it work in any realistic, if aggressive and optimistic, set of asumptions.

That doesn’t mean an investment here can’t be profitabe, but my analysis says that to do so, one must invoke the “Greater Fool” theory and hope that another investor will simply pay a higher price in the future for whatever reason, which to this fool harkens visions of gambling and dart-throwing monkeys more than it does investing.

Still it appears we are faced with a disruptive innovator of rare proportions. My personal response is to buy a small position (1% or less) to follow the parade, ever aware that I may be tasked with sweeping the streets behind the elephants rather than leading the parade.

So…what should Bear do?

I wouldn’t presume to know or to suggest. I do, however, enjoy sharing and learning others’ thoughts and strategies, including yours. And now you have a couple of mine.

My appologies if that’s less than helpful.