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SUMMARY
Parkev Tatevosian, CFA, provides a detailed comparison of Zscaler and Okta, two leading cybersecurity firms, focusing on their financial performance and valuation metrics. The analysis highlights improvements in profitability, capital allocation, and valuation, ultimately favoring Zscaler for its revenue growth and perceived undervaluation.
MAIN POINTS
- Zscaler surpasses Okta in trailing 12-month revenue for the first time in late 2025 after Okta's long-standing lead.
- Okta currently holds a superior operating profit margin at 5.7%, while Zscaler remains negative at -4.5%.
- Both companies have shown significant improvement in operating profitability over the past decade, narrowing their losses.
- Return on invested capital remains low for both companies, with Okta at 3.31% and Zscaler at -2.07%, but both are making progress.
- Valuations are closely matched, with Okta trading at a forward PE of 33 and Zscaler at 32.35; discounted cash flow analysis suggests Zscaler is undervalued and Okta is fairly valued.
- Despite the close comparison, Zscaler is identified as the slightly better buy due to its stronger revenue growth and more attractive valuation.
DETAILED ANALYSIS
The cybersecurity sector has experienced substantial growth in 2026, with Zscaler and Okta emerging as two of the industry's most prominent players. Historically, Okta maintained a lead in revenue, but Zscaler overtook Okta in trailing 12-month revenue for the first time in late 2025, signaling a notable shift in market dynamics. When comparing operating profit margins, Okta currently outperforms Zscaler, posting a positive margin of 5.7% compared to Zscaler's negative 4.5%.
Despite this, both companies have made remarkable progress over the past decade, with Okta improving from a negative 75% margin in 2017 to positive territory, and Zscaler narrowing its losses significantly.
Return on invested capital, a measure of management's effectiveness in deploying resources, remains a challenge for both firms. Okta's return stands at 3.31% and Zscaler's at -2.07%, both below their respective weighted average costs of capital. However, the trend for both is upward, reflecting ongoing improvements in capital allocation and operational efficiency.
Valuation metrics further underscore the similarities between the two companies. Okta and Zscaler trade at nearly identical forward price-to-earnings ratios—33 and 32.35, respectively—a convergence that has only recently occurred as Okta's performance has improved and Zscaler's valuation premium has diminished.
A discounted cash flow analysis provides additional insight, suggesting Zscaler is undervalued with a fair value estimate of $173 against a market price of $149, while Okta appears fairly valued at a market price of $142 versus a fair value of $125. The decision between the two is described as exceptionally close, with no clear winner based on the available metrics. Nevertheless, Zscaler is favored slightly due to its stronger revenue growth and more attractive valuation, making it the preferred choice for investors seeking exposure to leading cybersecurity stocks.
LINKS
- YouTube channel membership for exclusive perks and early access to videos.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on a six-step investing framework.
- Fiscal.ai investment research platform with a viewer discount.
- Webull investing platform sign-up with bonus shares.
- Free monthly newsletter via Substack.