Zscaler heads into mid-June with a sharp post-earnings selloff still dominating the tape, while short sellers appear to be taking profits rather than pressing their advantage.
The most striking move this week is not the price — it's the short position. Despite a 13% slide over the past five sessions to $125.84, short interest dropped sharply, falling 12% in a single day on June 9 to 7.3% of free float. That reverses a month-long build that had pushed shorts from around 10 million shares in early May to nearly 14.6 million at their May 28 peak. The May 28 spike almost certainly reflects positioning ahead of Zscaler's Q3 earnings, which arrived the following day and delivered a brutal -31% single-day move. Short sellers who timed that trade well appear to be covering now rather than chasing the stock lower.
The lending market tells a similarly unalert story. Availability runs at roughly 780% — meaning lendable shares are nearly eight times the current short position — and borrowing costs remain negligible at 0.45%, even after rising about 11% on the week. There is no sign of borrow pressure building. Options sentiment is only marginally more cautious: the put/call ratio at 0.76 sits modestly above its 20-day average of 0.71, a z-score of under 0.8, well within normal range. Against the 52-week PCR high of 1.29, this week's reading looks far from defensive. Positioning overall looks disorganised rather than committed in either direction.
What is more interesting is the gap between the stock's current level and where the Street thinks it should trade. After the earnings disaster, analysts queued up on June 10 to reiterate — not revise — their bullish calls. RBC Capital holds a $200 target, Wedbush $220, Cantor Fitzgerald $225, and Guggenheim $214, the last of which only upgraded to Buy from Neutral on June 1. Even the more cautious voices (Needham at $180, Wells Fargo at $180 after cutting from $210 in late May) imply more than 40% upside from current levels. The consensus mean of $193.79 represents roughly 54% above last close. The bull case centres on Zscaler's structural position in zero-trust architecture and SASE — a market still in early innings. Bears counter that the cautious FY27 preliminary guidance, unexpected sales executive departures, and heavy capital expenditure are not one-quarter noise but signals of a more persistent deceleration. With the EV/EBITDA multiple compressing about five points over the past month to 19x and the price-to-book ratio down nearly 17% over the same period, the valuation re-rating is already well underway.
The peer group offers little comfort. SentinelOne fell 12% on the week, CrowdStrike dropped 16%, and Palo Alto Networks shed 12%, suggesting the selloff is partly a sector-wide reassessment of cloud-security multiples rather than a ZS-specific disaster. Fortinet held better at -7%, consistent with its hardware-diversified model offering some insulation. The fact that ZS's 13% decline broadly mirrors the peer range makes it harder to argue for idiosyncratic re-entry on valuation alone.
The next scheduled earnings event falls on September 1. Between now and then, the key observable is whether the short rebuild that began in late May resumes as the stock stabilises, or whether the sharp single-day cover on June 9 marks the start of a more sustained unwind — that dynamic, combined with any revision to sell-side targets as FY27 guidance details emerge, will define the stock's technical floor going into the summer.
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