What Happened:
Shares of cloud security platform Zscaler (NASDAQ:ZS) fell 5.89% in the morning session after the yield on the benchmark 10-year Treasury bond topped 5% for the first time in over 15 years. Even with relatively decent inflation readings as of late, this could mean higher rates for longer, which would make it more costly for consumers to take out mortgages and hold credit card debt while making it more expensive for businesses to take out bank loans to fund investments and projects. As a reminder, higher rates hurt equity valuations because a company's stock price is essentially the present value of its future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher the discount rate. Additionally, these dynamics are more detrimental for growth stocks (like tech names) as more of the company's value is prescribed to its long-term potential.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Zscaler? Access our full analysis report here, it's free.
What is the market telling us:
Zscaler's shares are very volatile and over the last year have had 34 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move we wrote about was 11 days ago, when the company gained 5.1% on the news that Barclays analyst Saket Kalia upgraded the stock's rating from Equal Weight (Neutral) to Overweight (Buy) and raised the price target from $176 to $190. The price target indicates a potential 13% upside from where shares traded when the upgrade was announced.
Zscaler is up 47.4% since the beginning of the year, and at $162.43 per share it is trading close to its 52-week high of $173.05 from October 2023. Investors who bought $1,000 worth of Zscaler's shares 5 years ago would now be looking at an investment worth $4.48 thousand.
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