Zoom (NASDAQ:ZM) provides a global video-first communication platform that took off tremendously since the start of the pandemic. I am bullish on the stock.
Performance
Zoom stock was listed on the NASDAQ in 2019, but it wasn’t until the pandemic’s lockdowns set in, that it started rallying. Zoom gained by a total of 450% in 2020, but has drawn down to lose roughly 25% of its value year-to-date.
The sell-off was only natural as investors cashed in on profits and came to grips with the reality of rising competition and the fact that “work from home” wouldn’t be a permanent solution.
Zoom is now officially oversold, with its RSI trading at around 30. I think it’s time for a reversal, though, after the company suggested its growth is far from over in its second-quarter earnings beat in August. Zoom managed to produce revenue of $1.02B (+53.7% Y/Y) and an EPS of $1.04 during the quarter.
Five9 Deal
The soon-to-be tech giant was all but set to acquire cloud software company Five9 (NASDAQ:FIVN) in a deal worth $14.7 billion, but Five9’s shareholders rejected the approach.
The deal would have added another revenue stream to Zoom in a hypergrowth industry, but Zoom’s growing fast enough organically to remain competitive in the video conferencing space; it also has an adequate amount of cash on the table to acquire different targets if it chooses to do so.
It’s no secret that growth through acquisitions has been key to growth for the FAANG stocks, and Zoom will likely have to follow their blueprint if it’s to reach the $1000 stock price club, but there will be other deals in the future, and the Five9 merger isn’t essential at this stage.
Key Metrics
I want to emphasize the PEG ratio. If a stock has a PEG below 1.00, it generally means the company’s growth is outpacing the growth of the stock price. Zoom has a PEG of 0.24, suggesting it’s still in hypergrowth mode.
Zoom’s diluted EPS is also anticipated to grow by 139.63% over the next year, while its operating cash flow is projected to grow by 135.06%. These growth rates will definitely create a pull on the stock price, especially considering the low PEG ratio.
Wall Street’s Take
Wall Street thinks Zoom is a Moderate Buy, with an average Zoom price target of $364.30. There have been 10 buy ratings, 8 hold ratings, and no sell ratings on the stock. Investors can expect an upside of more than 40% within the next 12-months if the analyst price targets are to materialize.
Final Thoughts
It could be time to get back in on Zoom. The stock has sold off for a while, but it’s created a dip-buying opportunity more than anything. The failure to pull off the Five9 deal is a pity, but the firm’s organic growth and acquisition opportunities both remain intact.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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