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S&P 500   3,852.36
DOW   32,920.46
QQQ   303.59
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Can Cummins Power To A New High? 
S&P 500   3,852.36
DOW   32,920.46
QQQ   303.59
Mullen Automotive Stock, The Tide Has Turned
The #1 Energy Stock to Buy (Ad)
Energizer Holdings Inc; Losing Power Or Electrifying Time To Buy?
What do Mastercard Earnings Indicate About Consumer Spending?
Profit From the Commercial Solar Boom? (Ad)
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ONSemi Is Marching Higher On Great Results
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What Tyson Foods Q1 Means For Staples Stocks
Can Cummins Power To A New High? 

Zoom Video Communications Valuation Is Realigned With Reality 

Zoom Video Communications Valuation Is Realigned With Reality 

Zoom Video Communications (NASDAQ: ZM) share price zoomed into the stratosphere when the pandemic gripped the world but those days are long over. Now, after correcting about 85% from the post-pandemic peak, the stock is finally back down at a level that looks attractive. The Q2 report was a mixed bag of results that includes weak guidance but there is a takeaway for investors to contemplate. 

Zoom Video Communications guidance was lowered to a range below the Marketbeat.com consensus figures but growth is still present and, more importantly, so is profitability. How many tech stocks, especially young growth-oriented startups like Zoom Video Communications, can say they have positive earnings at this stage in the game? So, while growth is slowing, the company is maturing and its valuation is far more palatable. Trading at roughly 22X its earnings the stock is not only cheap compared to other tech growth stocks but to blue-chip tech names like Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) as well. 

Mixed Results Weigh On Zoom Video Communications

Zoom Video Communications reported a mixed quarter but that is only with respect to the analysts' estimates and the comps to prior years. The company reported $1.1 billion in net revenue for a gain of 7.8% which missed the analysts' consensus by 180 basis points but is up in the range of 900% over the last 3 years. In that light, and with the pandemic receding, it’s no wonder that growth has slowed, the key point is that this company is still growing and its client base is maturing. The number of customers contributing more than $100,000 in revenue grew by 37% YOY and is underpinning the company’s growth. 


Moving down to the margin and earnings, the news gets better although the full-year guidance is weak. The company’s GAAP and adjusted operating margins shrank on a YOY basis but far less than anticipated. The adjusted margin of 35.8% put EPS at $1.05 per share which is down from last year but $0.12 better than expected but the strength was not enough to support the previously released guidance. The company lowered its ranges for Q3 and FY22 revenue and earnings to below the consensus figures which has the analysts downgrading the stock and lowering their targets even more. 

At least 13 of the 30 analysts rating Zoom Video Communication came out with commentary in the wake of the report and it all includes a price target reduction. The single downgrade to Neutral has the Marketbeat.com consensus figure pegged at a Strong Hold, a rating that has held steady over the last year, while the price target came down considerably. The new targets include a new low of $76 which assumes some downside for the market, and the consensus is down more than 50% over the last year, but the general take is this stock is undervalued by 70%. 

The Technical Outlook: Zoom Video Communications Sell-off Is Overextending 

The Q2 news and guidance have shares of ZM moving lower and they could move even lower but the risk is to the upside for this market. The sell-off not only appears to be overextending on the weekly charts with stochastic and MACD divergent from the new lows but the company’s health is good. The growth is slowing but the growth is there and profitability is present as well. The stock may move lower but a bottom will be reached soon and a reversal could begin as soon as the next earnings reporting season. Until then, investors should watch the $80 level because there are signs of support on the daily chart and the potential for bottoming at this level. 

Zoom Video Communications Valuation Is Realigned With Reality 

Should you invest $1,000 in Zoom Video Communications right now?

Before you consider Zoom Video Communications, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Zoom Video Communications wasn't on the list.

While Zoom Video Communications currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Zoom Video Communications (ZM)
2.6071 of 5 stars
$77.07-3.1%N/A33.80Hold$103.76
Microsoft (MSFT)
2.8757 of 5 stars
$256.77-0.6%1.06%28.53Moderate Buy$278.76
Amazon.com (AMZN)
3.1307 of 5 stars
$102.18-1.2%0.20%-381.25Moderate Buy$144.87
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Thomas Hughes

About Thomas Hughes

Contributing Author: Technical and Fundamental Analysis

Thomas got his start with the markets while working as a Chef. In 2005 a chance invitation to attend the seminar “How To Buy And Sell Your Own Stocks” altered his worldview. Soon trading and stocks consumed his every waking moment to the point of excluding all else. Thomas now enjoys a much different lifestyle engaged in his true passion, uncovering great investments.
Contact Thomas Hughes via email at tmhughes.writeon@gmail.com.

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