Zscaler enters its September 1 earnings print in an unusual spot: the stock is down 9% on the week while short sellers are actively reducing exposure and analysts keep lifting targets.
The short interest picture has shifted meaningfully since Tuesday's prior note. Short interest fell 12% in a single session on August 25, dropping to 3.9% of the free float — down from around 5.1% of float at the start of August. That month-long reduction of roughly 18% in short positions is the clearest signal that bears are not pressing their bets into the print. Borrow conditions confirm there is no stress in the lending market. The cost to borrow has edged up 43% on the week to 0.47% — still firmly in "low" territory by any measure. Availability is extraordinarily loose at 8,826%, meaning there are roughly 88 shares available to borrow for every one currently lent out. This is one of the easiest borrows in the software universe right now.
Options positioning is the more interesting tension heading into September 1. The put/call ratio has climbed to 0.80, almost two standard deviations above its 20-day average of 0.77 — the most defensive options posture seen in recent weeks. That caution sits in contrast to an otherwise bullish analyst backdrop. JP Morgan's Brian Essex raised his target from $205 to $215 this morning, maintaining Overweight. Yesterday Barclays lifted from $170 to $192, and earlier in the week Keybanc moved from $185 to $210. The Street direction is unanimous: multiple firms raising, no visible downgrades, and a consensus mean target around $199 — roughly 18% above the current price of $168.42. That gap widened sharply this week as the stock fell while targets rose.
The earnings history makes Tuesday's print high-stakes reading. The last Zscaler result — reported May 26 — triggered a 31% one-day collapse and a further 21% five-day loss. The print before that, in late May, produced the opposite: a 20% gain on the day. That kind of binary outcome is exactly why options traders are buying protection even as analysts raise targets. Factor scores add nuance: EPS momentum over both 30 and 90 days ranks in the top 10-15% of the universe, and the 12-month forward EPS estimate has risen sharply year-on-year. But the EPS surprise score sits at just the 18th percentile — meaning Zscaler has a mixed track record of actually beating the numbers the Street sets for it.
Peers broadly fell on the week too. Closest correlated name SentinelOne dropped 9.7%, roughly in line with Zscaler. Dynatrace bucked the move, closing up 1.6%. The divergence points to something specific to the zero-trust/cloud-security sub-segment rather than a broad software selloff.
The short score has eased from around 39.5 to 37.3 in the past week — moving in the direction of less bearish conviction from a positioning standpoint, even as the stock price fell. The September 1 print becomes the resolution point: what to watch is whether the gap between analyst optimism (targets averaging $199) and options caution (PCR near its highest in weeks) closes through the earnings beat or through a reset lower.
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