2024 has been a bad year so far for Zscaler (NASDAQ: ZS) investors as share prices of the cybersecurity specialist are down 17%. However, its fiscal 2024 third-quarter results (for the quarter ended April 30) were released on May 30 and they suggest the rest of 2024 may be better.

Zscaler's stock price climbed 8.5% the day after the company released its latest quarterly report on news that the company's revenue and earnings crushed Wall Street's expectations. More importantly, the stock has kept its foot on the gas since then (it's up 17% so far).

Let's look at the reasons this cybersecurity stock could sustain its new-found momentum.

Zscaler's beat-and-raise quarter points toward better times for investors

Zscaler's fiscal Q3 revenue increased 32% year over year to $553.2 million, well ahead of the $535.9 million consensus estimate. The company's earnings grew at a stronger pace of 83% year over year to $0.88 per share, and that was miles ahead of the $0.65 analyst estimate. The positives didn't end here, as Zscaler raised its full-year revenue guidance to $2.14 billion from the earlier figure of $2.12 billion.

It's worth noting that Zscaler originally expected 27% revenue growth in fiscal 2024, but it now expects to end the year with a 32% top-line increase. The company also anticipates a jump of 4.9 percentage points in its operating profit margin this year. As a result, Zscaler now forecasts its fiscal 2024 earnings to hit $3 per share as compared to the earlier guidance range of $2.20 to $2.25 per share.

A big reason Zscaler has been able to deliver a beat-and-raise quarter is the growing adoption of the company's cloud security platform. This is evident from the company's dollar-based net retention rate of 116%, a metric that compares the spending by its customers to the spending by those same customers in the same period last year. So a reading of over 100% means that Zscaler customers have extended their usage of its offerings or adopted more of its products.

The number of Zscaler customers with more than $1 million in annualized recurring revenue (ARR) increased 31% year over year, while those with ARR of more than $100,000 jumped 20% year over year. More importantly, Zscaler expects to win a bigger share of customers' wallets by integrating artificial intelligence (AI)-powered tools into its cloud security platform.

Management pointed out on the company's latest earnings conference call that it is "developing multiple AI-powered applications." The good part is that Zscaler has already started deploying some of its AI solutions, such as a copilot that will help security analysts become more efficient, as well as a generative AI security offering that will allow customers to monitor generative AI apps.

Thanks to these moves, Zscaler believes that its current total addressable market of $72 billion could increase by "several billion dollars." We have already seen that Zscaler expects full-year revenue of just over $2 billion, which means that it could be at the beginning of a remarkable growth curve.

More reasons to buy the stock

It is worth noting that 79% of the 43 analysts covering Zscaler stock rate it as a buy. The stock's median 12-month price target of $223 points toward an 18% upside from current levels. That's why it would be a good idea to buy Zscaler stock right now as it trades at 13.7 times sales, which is significantly lower than its five-year average price-to-sales ratio of 23.

Also, its forward price-to-earnings ratio of 56 seems expensive at first, but that's a big discount to the five-year average earnings multiple of 156. Investors should also note that Zscaler's earnings guidance for fiscal 2024 suggests that its bottom line is on track to grow 67% from the previous fiscal year. So Zscaler should be able to justify its rich valuation by delivering robust earnings growth, which is why investors looking to buy a growth stock would do well to buy it before it jumps further.

Should you invest $1,000 in Zscaler right now?

Before you buy stock in Zscaler, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Zscaler wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $794,196!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of June 10, 2024

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zscaler. The Motley Fool has a disclosure policy.

1 Incredible Growth Stock Down 15% That Seems Set to Make a Big Move was originally published by The Motley Fool