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Dropbox Is Trading at a Discount of 45% to Analysts’ Estimate

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Apr. 15 2019, Published 12:08 p.m. ET

DBX’s returns

Shares of cloud storage company Dropbox (DBX) have fallen 21.6% since it closed trading on March 23, 2018, the day it was listed as a public company. In 2018, the stock fell 26%. It has recovered this year and has risen 9.4% to date.

Dropbox stock is trading 21% above its 52-week low of $18.50 and 49% below its 52-week high of $43.50.

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Sales and earnings growth

Analysts expect Dropbox’s sales to rise 17.8% to $1.64 billion in 2019, 14.5% to $1.88 billion in 2020, and 13.7% to $2.13 billion in 2021. Its EPS are expected to fall 2.4% in 2019 and rise an impressive 42.5% in 2020. Its EPS could grow at a compound annual growth rate of 15% over the next five years.

One of the major challenges affecting Dropbox’s sales growth is its lackluster conversion of paid users. The company’s total number of paid users accounts for just 3% of its total user base. Though Dropbox’s paying user base increased by 15.4% to 12.7 million in the fourth quarter of 2018, higher growth might have better driven investors’ interest.

Dropbox may have to offer additional capabilities to attract more users to its paid subscriptions. To that end, the company recently acquired HelloSign, which helps scan, edit, and sign documents.

Analysts’ recommendations

Of the 12 analysts covering Dropbox, seven have given it “buy” recommendations, four have given it “holds,” and one has given it a “sell.” The average 12-month target price for Dropbox is $32.38, which indicates a potential upside of 45% from its current level.

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