Is Zscaler Stock a Buy Despite Stock-Based Compensation Issues?

Cybersecurity software has been one of the hottest investment themes of the last couple years. As companies migrate their operations to the cloud, they need new security services to keep their data and processes safe.

As a result, cloud-based cybersecurity leader Zscaler (ZS 0.97%) has enjoyed a resurgent revenue growth rate since the pandemic started. Because of its enduring expansion, shares are beginning to recover after a brutal sell-off during this year's bear market. Before getting too excited, though, consider one glaring issue with the company: stock-based compensation.

A plague for shareholders of tech companies?

It's become a standard practice to dole out stock-based compensation to employees at tech companies. Some investors bemoan the practice, and often for good reason. Issuing new stock dilutes the ownership of the company for shareholders. However, the argument can also be made that stock-based compensation is a necessary part of a company's culture, as it helps with recruiting and retaining top talent, not to mention helps an upstart company hold onto its precious cash as it expands.

Given how tight the labor market is for software engineers and the like, it's no surprise that Zscaler falls into this camp of stock-based compensation users.