ZS Looks Stronger Than PANW With 61% Return Potential

We Forecast Higher Stock Return For Zscaler vs. Its Competitor Palo Alto Networks
 
Palo Alto Networks (PANW) is trading at a cheaper P/S valuation vs Zscaler (ZS) but it makes sense to pay more for Zscaler for higher return.
 

P/S = Price to Sales | P/EBIT = Price to earnings before interest and taxes | Current = as of date: 7/31/2025 | LTM = Last 12 months
 
PANW provides global cybersecurity solutions, including firewall appliances, security management, and subscription services for threat prevention, malware protection, URL filtering, and device security. ZS provides cloud-based security solutions for secure user, device, and workload access to applications, including Internet Access and workload segmentation to detect and fix SaaS misconfigurations.

Running growth and valuation scenarios based on historical trends is one way to assess stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
 
3-Year Return Depends On [1] Revenue Growth [2] P/S
 

P/S = Price to Sales | P/EBIT = Price to earnings before interest and taxes | Current = as of date: 7/31/2025 | LTM = Last 12 months
 
How Much Can Revenue Grow In Next 3 Years
 
We forecast annual revenue growth of 15.0% for PANW and 19.6% for ZS
 
Past revenue growth metrics that form basis of our expectation
 

PANW Revenue Comparison | ZS Revenue Comparison
Recent Quarter Growth = Last quarter (yoy) growth | LTM = Last 12 months
 
Forecast methodology involves:
(a) Different weights to short-term (quarterly) vs long-term (LTM, 3Y Avg) growth (b) Removing exceptional growth periods from consideration
(c) Applying base effect to moderate future growth (d) Applying growth caps and floors based on company size
 
Which P/S Scenarios Make Sense
 
We forecast P/S of 13.0 for PANW and 16.5 for ZS based on below plausible scenarios
 
P/S Scenarios & Corresponding 3-Year Returns (in brackets)
 

PANW Valuation Ratios Comparison | ZS Valuation Ratios Comparison
Current = as of 7/31/2025 | Expansion/Contraction = Based on quarterly trend (+/-) | Average = Historical quarterly average
(a) Exceptional spikes excluded (b) Quarterly trend defined by quarterly average % change (c) Expansion/contraction capped at +30%/-30%
 
Are Current P/S Ratios Justified
 
A higher P/S is justified by higher margin, higher revenue growth, better margin expansion, and lower risk
 

 
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.