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Should You Buy Zoom Stock Today?

Summary

Should You Buy Zoom Stock Today?The shareholders who bought the stock before the pandemic were rewarded with a 391% return in 2020. The company was a beneficiary of the work-from- home environment. According to the Bureau of Labor Statistics, as of December 2021, 11% of workers were still teleworking.

According to TechRepublic, the company is at the forefront of secular growth in the video call platform market. Many companies will be more open to a flexible work schedule moving forward as a result of the Pandemic. Is it a good time to buy the company’s stock?
The image is from the same source.

A rough start to the year.

As a result of rising interest rates and inflation, the value of Zoom shares has plummeted over the past six months. Revenue and earnings per share are expected to grow by 50% and 46%, respectively, in the next fiscal year. A debt-to-equity ratio of 2% and a strong cash position is what Zoom has. The company grew free cash flow by over $1 billion in the fiscal year. Superb revenue growth resulted in a significant climb in free cash flow.
Video communications.

The growth of the company is expected to let up in the coming years. As the company becomes more mature, sales growth will come down from their all-time highs. The company’s 160% compound annual growth rate over the past three years doesn’t compare to double-digit revenue growth for the next five years.

Wall Street analysts are expecting an average annual growth of 28% over the next five years up to an earnings per share of $6.21 per share in fiscal year 2026. Many investors might be hesitant to pay a lofty valuation for the company when taking into account the deceleration in growth, but this is more favorable than the expected top-line scenario.
The valuation is not enough.
It’s not desirable to observe the company’s peer group when the valuation has contracted. The price-to- earnings multiples of top competitors like Microsoft, and GOOGL are higher than that of Zoom. I think it’s safe to say that the company is still trading at expensive valuation multiples.

YCharts has ZM PE Ratio data.

I think the company needs to improve future growth prospects to justify trading at current valuation multiples. With revenue and earnings growth expected to pull back in the years ahead, I wouldn’t be surprised to see growth-oriented investors exit their positions. There will be downward pressure on the valuation of the company for the foreseeable future because of the slowing growth and macroeconomic issues.
Is it time to buy something?

I’m interested in where the company is going, but I don’t pay attention to past performance. In the past couple of years, Zoom has provided investors with spectacular growth and returns, but I don’t think that will continue into the future. Increased competition from tech companies like Microsoft and Alphabet will challenge the business moving from here on out.

I think investors who are still excited about the stock may be wise to wait for a larger decline before considering an investment, as I don’t think the stock is currently trading at an attractive-enough valuation. The future doesn’t look as bright as it used to.

The author of this article may disagree with the official recommendation position of a premium advisory service. We are motley! Asking an investing thesis helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Should You Buy Zoom Stock Today?The shareholders who bought the stock before the pandemic were rewarded with a 391% return in 2020. The company was a beneficiary of the work-from- home environment. According to the Bureau of Labor Statistics, as of December 2021, 11% of workers were still teleworking.

According to TechRepublic, the company is at the forefront of secular growth in the video call platform market. Many companies will be more open to a flexible work schedule moving forward as a result of the Pandemic. Is it a good time to buy the company’s stock?
The image is from the same source.

A rough start to the year.

As a result of rising interest rates and inflation, the value of Zoom shares has plummeted over the past six months. Revenue and earnings per share are expected to grow by 50% and 46%, respectively, in the next fiscal year. A debt-to-equity ratio of 2% and a strong cash position is what Zoom has. The company grew free cash flow by over $1 billion in the fiscal year. Superb revenue growth resulted in a significant climb in free cash flow.
Video communications.

The growth of the company is expected to let up in the coming years. As the company becomes more mature, sales growth will come down from their all-time highs. The company’s 160% compound annual growth rate over the past three years doesn’t compare to double-digit revenue growth for the next five years.

Wall Street analysts are expecting an average annual growth of 28% over the next five years up to an earnings per share of $6.21 per share in fiscal year 2026. Many investors might be hesitant to pay a lofty valuation for the company when taking into account the deceleration in growth, but this is more favorable than the expected top-line scenario.
The valuation is not enough.
It’s not desirable to observe the company’s peer group when the valuation has contracted. The price-to- earnings multiples of top competitors like Microsoft, and GOOGL are higher than that of Zoom. I think it’s safe to say that the company is still trading at expensive valuation multiples.

YCharts has ZM PE Ratio data.

I think the company needs to improve future growth prospects to justify trading at current valuation multiples. With revenue and earnings growth expected to pull back in the years ahead, I wouldn’t be surprised to see growth-oriented investors exit their positions. There will be downward pressure on the valuation of the company for the foreseeable future because of the slowing growth and macroeconomic issues.
Is it time to buy something?

I’m interested in where the company is going, but I don’t pay attention to past performance. In the past couple of years, Zoom has provided investors with spectacular growth and returns, but I don’t think that will continue into the future. Increased competition from tech companies like Microsoft and Alphabet will challenge the business moving from here on out.

I think investors who are still excited about the stock may be wise to wait for a larger decline before considering an investment, as I don’t think the stock is currently trading at an attractive-enough valuation. The future doesn’t look as bright as it used to.

The author of this article may disagree with the official recommendation position of a premium advisory service. We are motley! Asking an investing thesis helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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