Summary: OVERPRICED
Score: 6/20
MOS: 0%
Share Price: $402
Sticker Price: $103
Is Zoom stock a good buy?
Zoom Video Communications, Inc. (Zoom) is an American technology company founded in 2011 and headquartered in San Jose, California. Zoom went public in March of 2019 at around $60 per share. The stock increased to $130 by March of 2020, over a 100% return the same year. That’s pretty good but it doesn’t compare to what happened next…
Once COVID-19 hit and companies started allowing more employees to work from home, Zoom became highly in-demand. The stock went from $130 in March to an all time high of $559 in October. That’s a 330% return in just a few months. Since October, the stock has been on a slight decline as the stock is currently $402. That’s a decline of 28% since October.
They question is, why?
Zoom is considered a growth stock and when a growth stock stops growing, and doesn’t have the financial strength like a value stock, the share price can fall abruptly.
On 12/1, the share price fell by 14%. Here is why…
Revenue Growth is Slowing
- Revenue Q4 (2019): $188M
- Revenue Q1 (2020): $328M (74% increase)
- Revenue Q2 (2020): $663M (102% increase)
- Revenue Q3 (2020): $777M (17% increase)
Net Income Growth is Slowing
- Net Income Q4 (2019): $15M
- Net Income Q1 (2020): $29M (93% increase)
- Net Income Q2 (2020): $190M (555% increase)
- Net Income Q3 (2020): $194M (2% increase)
Many companies have adapted well to remote work by using platforms like Zoom. Let’s talk about the work-from-home industry for a moment…
This article from prnewswire.com states the following:
- 28% of employees expect to return to the workplace by the end of 2020
- 38% of employees expect to return to the workplace by the end of 2021
- Only 17% of employees feel comfortable returning to the workplace at all
That last percentage is the line item to focus on. The great majority of employees are NOT comfortable returning to the workplace. This means means work-from-home will most likely remain for the foreseeable future and platforms like Zoom will remain a necessity.
Although Zoom’s revenue and net income have leveled off, this doesn’t mean the stock will nose dive. Due to the high demand of platforms like Zoom, this price may remain where it’s at for a while. On the other hand, if we start to see the revenue and net income fall lower than previous months, then we have a problem. In other words, that’s a great time to SELL before you lose out on the massive gains from 2020.
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