Wall Street Just Cut This Tech Stock's Rating. History Says That's When You Buy.

Times person go hard for the banal of cybersecurity steadfast Zscaler (NASDAQ: ZS). The company, known for its zero-trust security, precocious received downgrades from concern institution Evercore ISI. This occurred pursuing its net merchandise for the 3rd 4th of fiscal 2026 (ended April 30).

However, those moves besides travel arsenic Zscaler banal trades astatine its lowest level since 2023. Amid specified conditions, past shows this downgrade whitethorn yet beryllium bullish, and here's why.

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The downgrade

Much of the negativity appears to stem from the fiscal Q3 net release. Investors did not respond good to the projected yearly recurring gross (ARR) scope of 16% to 17% for fiscal 2027, good beneath the 25% gross maturation successful fiscal Q3.

Additionally, Zscaler revised its escaped currency travel borderline projections for fiscal 2026 to 22.8% to 23.3%, down from the 26.5% to 27% scope antecedently predicted. That came arsenic the institution raised its superior expenditures (capex), a metric that companies subtract from escaped currency travel calculations.

That quality led to a 32% driblet successful the banal terms successful the pursuing trading session. It was successful that situation that Evercore expert Peter Levine downgraded Zscaler from outperform to in-line.

In fairness, investors should astir apt reevaluate investments nether specified slowing conditions. Moreover, cybersecurity stocks similar Zscaler look aggravated competition, making the institution highly susceptible to specified slowdowns.

Nonetheless, the selling appears overdone. Zscaler banal has reached levels past seen successful 2023.

Furthermore, portion it continues to study nett losses owed to stock-based compensation expenses, its price-to-sales (P/S) ratio is beneath 7, good beneath those of its main competitors, CrowdStrike and Palo Alto Networks.

Additionally, it truthful happens that these 3 cybersecurity stocks person risen aft suffering downgrades. Morgan Stanley downgraded CrowdStrike successful July 2025 from overweight to adjacent value connected valuation concerns. Though it fell successful consequent months, it is up by astir 50% since that downgrade.

Last November, HSBC downgraded Palo Alto Networks from clasp to trim connected what it called a "sufficient, but not transformational" net study that month. That came aft Palo Alto banal had struggled passim 2025.