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This Cybersecurity Company's Shares Are Struggling in Spite of Strong Sales

The CEO tells Jim Cramer that recurring revenue could grow five-fold.

Cybersecurity stocks were drawing plenty of attention from investors even before Vladimir Putin sent Russian tanks into Ukraine.

Now, as the so-called kinetic war against the Urkainians continues, separate battles are being waged online, only highlighting the need to protect information and data.

Recently, Jim Cramer spoke with Jay Chaudhry, chairman and CEO of Zscaler  (ZS) - Get Zscaler Inc. Report a cybersecurity company whose shares had been trading at lofty valuations until tech sold off to begin the year.

Chaudhry said Zscaler’s Zero Trust platform uses the largest corporate security cloud to make doing business and navigating change a simpler, faster, and more productive experience.

Zscaler stock shot up nearly eightfold from March 2020 to November 2021, but has fallen since.

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Chaudhry told Cramer that business momentum is still pulling in Zscaler's favor. The company just crossed $1 billion in annual recurring revenue and Chaudhry sees a path to $5 billion. He founded the company back in 2008.

Shares plunged 15.7% on the day following the latest earnings report. 

Bruce Kamich, Real Money’s technical analyst, was wary on the stock after the results. He noted that shares have been in a downtrend since November on heavy volume and that it’s trading below both its 200-day and 50-day moving averages. In the aftermath of the results, “ZS might make a temporary low and rebound for a few weeks but that is not the kind of trading I really like to do,” Kamich wrote. “A better approach is to stick to charts that are still in uptrends.”

While all segments of their business are growing, Chaudhry told Cramer that sales to the federal government came in light. That's because the government has been operating on stop-gap funding, he told Cramer, and without a budget, no new projects can begin.

When asked about the negative reaction to their earnings, Chaudhry said he manages the company for the long term and it's shortsighted to look at any given quarter in a vacuum. Cramer agreed.

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