2024-05-14 07:13:45 ET
Summary
- Zoom stock's valuation has drastically compressed in recent years, with low price-to-CFO and price-to-sales ratios.
- I consider the discounted valuation to be justified due to increased competition and normalized EPS growth outlook.
- Technical indicators suggest no clear direction either in the near term.
Zoom stock: cheap valuation has a reason
Zoom ( ZM ) caught my attention in my recent screening for beaten-down stocks, stocks that have suffered the largest valuation compression in the recent 2-3 years. ZM stock really stood out, as you can easily see from the following figure below. Its current price to CFO (cash from operations) is only about 12x, while the stock boasted a P/CFO ratio exceeding 100x not that long ago. In terms of topline multiples, its P/S ratio currently sits around 4.3x (see the bottom panel), again a far cry from the 40x+ level about 3 years ago. When the multiples are so extraordinarily compressed relative to a stock's recent historical record, past experiences have taught me to consider the following two possibilities:
- The market is wrong and overacted to some temporary headwinds
- The fundamentals have changed and the stock's valuation compression is justified
Read the full article on Seeking Alpha
For further details see:
Zoom Stock Is Still Looking For Direction (Technical Analysis)