<p>For many investors, Zoom Video Communications (NASDAQ: ZM) may well be the one who escaped. ZM shares were the capital that investors tried to buy at a slightly deeper dip or were too afraid to get started when the market began to roll over.
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And in the midst of all the sales pressure, the ZM share has been incredibly strong.
Shares have increased by 115% for the year so far. Bulls continue to flock to the few stocks that are functioning right now, those that show relative strength in the face of panic. Zoom video is one of those names, but that does not mean it is a purchase right now.
In the same way that the new coronavirus has caused a nail in several cheap biotechnological stocks, the virus has caused a nail in the ZM stock. In these types of scenarios, these obscure biotechnological stocks tend to see dramatic losses as the virus declines. While the catalyst to surpass, obscure biotechnological stocks and Zoom Video are the same, the result is not.
We are in unsurpassed times and handle a scenario that changes by the hour. We have social distancing in place all over the world, with many states under lock and key.
It has accelerated several important trends, such as streaming video, telehealth and work from home. It has received a lift to Microsoft (NASDAQ: MSFT) for its cloud and team companies, as well as Slack (NYSE: WORK).
This is clearly causing an increase in the use of Zoom Video as well, with JPMorgan analysts saying that the company is seeing a nearly 400% increase in daily average users (DAU).
When the virus begins to subside and employees begin to return to the office, it is very possible that ZM shares will strike.
However, there is a silver lining: Video conferencing was a growing trend before Covid-19 broke out. As many are now forced into the situation, the virus probably accelerated that trend as more and more users get a taste of it.
Evaluate zoom video
All that said, the ZM stock has become bonkers. Investors who want to buy now do not take the share at a discount and go before the market – the share has more than doubled already!
Current estimates call for $ 927 million in sales this year. It may well be conservative at this point, so let’s be generous and round it up to $ 1 billion. It still leaves Zoom stock trading more than 44 times this year’s revenue.
I’m all for growth stocks, like Luckin Coffee (NASDAQ: LK) and Shopify (NYSE: SHOP). But this valuation is not cheap. Revenue estimates based on two fiscal years ahead (for the fiscal year 2023) require $ 1.8 billion in sales. Now take this estimate with a grain of salt, because even nailing financial 2021 revenues will be tough.
But still, let’s be generous and round up to $ 2 billion in sales. This means that the ZM share is still trading at more than 22 times the public revenue from 2023. In fact, the highest estimate on Wall Street for the financial year 2023 is $ 2.1 billion, while the highest for this year is $ 1.03 billion .
Then there are the positives
The valuation is reason to pause, but there are also many positive effects in this story. First, the growth is enormous and while Zoom went public less than a year ago, management has shattered expectations. The company has turned on profit and revenue estimates during each quarter of its public life.
Apart from impressive sales growth, Zoom also has strong margins. Subsequent gross margins of 81% are impressive, although operating margins can be improved from just 2%. The last number is deceptive, as it looks like Zoom can barely make a profit. What it should emphasize for investors is that the company can make a profit. This is despite the fact that it is a relatively new IPO and despite the fact that it has driven enormous income growth right now.
Zoom Video was profitable during the financial years 2020 and 2019, with net income increasing by 237% to $ 25.3 million at that time. Furthermore, Zoom shares have a positive free cash flow during each of the last four financial years. In fact, the company generated more than $ 100 million in free cash flow during the most recent fiscal year.
Finally, Zoom has no long-term debt, $ 855 million in total cash, and $ 1.1 billion in current assets against only $ 333.8 million in current liabilities.
Overall, ZM shares are a buy-on-dip candidate.
Matthew McCall left Wall Street to actually help investors – by getting them into the world’s biggest, most revolutionary trends FOR anyone else. The power to be “first” gave Matt’s readers the chance to bank + 2,438% in Stamps.com (STMP), + 1,523% in Ulta Beauty (ULTA) and + 1,044% in Tesla (TSLA), just to name a few . Click here to see what Matt has up his sleeve now. Matt does not directly own the above-mentioned securities.