While the pandemic put many companies out of business, others found an opportunity to thrive. One such company is Zoom. The video teleconferencing company became the primary way for companies to meet (besides Google Meet) over the past 2 years. Zoom’s stock price reached a high of $559 in October of 2020 at the height of the pandemic – but, as restrictions loosened and life started to return to normal, the stock began falling back to earth. More and more employees are returning to the office and abandoning the work-from-home lifestyle. The demand for Zoom has dropped significantly. Within a few weeks of the record high, VectorVest rated Zoom a sell. Since then, the company’s stock has steadily dropped 78% in price to where it sits today – just $83.
Things don’t appear to be getting any better for Zoom in the short or long term, either, as they’ve just recently reported lackluster 2nd quarter earnings. The company’s financials came in under analyst expectations – and the third quarter is looking to be more of the same. Following the poor earnings report, analysts cut their price targets on Zoom and caused shares to fall an additional 10%.
The interesting conundrum for Zoom is that the 2nd quarter wasn’t all that bad from a financial standpoint – they narrowly missed expectations. While revenue rose 7.6% from the previous 2nd quarter, analysts were looking for 9.6%. The problem is that in the big picture, growth is slowing to a standstill – and the long-term outlook isn’t positive. At this point in time, the pandemic boom that got Zoom to reach such incredible heights is long gone. The question now becomes – how can they build a durable, post-pandemic business?
According to Zoom executives, there are two big initiatives that will make this vision a reality: a lower-priced Zoom Rooms conferencing platform and the rollout of Zoom Phone voice service. These new products will hopefully get user and sales growth back on track. But – from an investor standpoint, has this stock run its course? If you’re currently invested in Zoom, should you keep holding on for better days, or is it time to cut losses? VectorVest’s stock analysis software currently rates Zoom a sell – here’s why.
Two Reasons Zoom Has Been Rated a Sell in the VectorVest System
Our stock analysis system takes traditional fundamental and technical analysis and simplifies it for investors. We use three proprietary ratings to assess the opportunity of any given stock at any given time: RV (Relative Value), RS (Relative Safety), and RT (Relative Timing). These are averaged out to come up with the overall VST (Value, Safety, Timing) rating for a stock. And in Zoom’s case, the VST rating of 0.76 is poor on a scale of 0.00-2.00.
While the upside potential for Zoom is fair with an RV rating of 0.98, the VectorVest system suggests the stock is still significantly overvalued. Taking into account forecasted earnings per share, growth rate, profitability, and a few other factors, the intrinsic value of Zoom is actually closer to $56/share.
But the two big reasons Zoom has been rated a sell are the very poor timing and poor safety ratings. With a RS rating of 0.83, Zoom is a risky stock right now. The company’s financial performance lacks consistency and predictability. And a RT rating of 0.43 suggests the stock has a strong negative trend pushing the price down. VectorVest suggests buying stocks rising in price, so wait until RT crosses back above 1.00.
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for Zoom, it is overvalued, risky, and is trending lower right now.
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