Cybersecurity stocks are surging. One looks promising into earnings
Zscaler is set to report earnings, and there is optimism surrounding its stock due to a potential bullish reversal. The company is experiencing significant revenue growth and has a strong balance sheet, positioning it well in the AI security market. However, there are risks to consider, including competition and potential deceleration in net retention.
- ▪Zscaler's revenue is growing at 26% year-over-year, with trailing 12-month revenues expected to reach $3.32 billion.
- ▪The company has nearly $1 billion in next twelve months free cash flow and a net cash position of $1.7 billion.
- ▪Zscaler's AI security offerings are designed to address emerging risks associated with AI models and applications.
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Zscaler reports after the close. I'm leaning long the stock, which appears to be in the midst of a bearish-to-bullish reversal, but not long premium (the options). At a 12.2% implied move versus an 11.3% long-term average, options aren't cheap. I want to be relatively net flat premium with a bullish tilt/sentiment (aka "delta"). A call spread risk reversal, selling an out-of-the-money put and using the proceeds to buy a call spread, gives me long exposure, little to no premium outlay, while taking slightly less risk than purchasing the stock outright in the event earnings aren't well-received. The selling of the downside put will tie up cash, but no more than if you simply bought the stock.
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