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Investing in Zoom Stock amid COVID-19, Boom or Bust?

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On April 6, Zoom Video Communications (NASDAQ:ZM) stock fell 4.1% and closed at $122.94. At that closing price, the market cap was $34.3 billion. In comparison, the S&P 500 Index and the Dow Jones Industrial Average Index have gained 7.0% and 7.7% on the same day, respectively. The broader markets gained as the COVID-19 cases slowed down in Europe and US. Read Can US Stock Markets Rise in Q2 after Q1 Crash? to learn more.

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As of Monday, Zoom stock was trading 25.5% below its 52-week high of $164.94 and 105.1% above its 52-week low of $59.94. On a YTD (year-to-date) basis, the stock has gained 80.7% as of Monday. The stock price has fallen 18.5% in the trailing five-day period amid privacy and cybersecurity concerns. People have been using the Zoom meeting app more amid the pandemic. People have to stay home to reduce the spread of COVID-19.

Analysts’ target price for Zoom stock

On Monday, Credit Suisse analyst Brad Zelnick downgraded Zoom stock to “underperform” from “neutral.” However, the analyst increased its target price on the stock from $95 to $105. According to a report from TheFly, “Trading at 40 times 2020 consensus revenue expectations, the current share price embeds significantly greater conversion of free users than an upside model scenario suggests.” The report also said, “While Zoom is benefiting from having the best product at the right time, the overall category remains competitive and every unified communication as a service vendor will eventually offer its own video solution.”

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Among the 23 analysts covering Zoom stock, seven recommend a “buy”—up from six in the previous month. About 13 analysts recommend a “hold”—unchanged from the previous month. Three analysts recommend a “sell”—up from two the previous month. Analysts have an average target price of $116 on Zoom. The target price implies a return of -5.6% based on the closing price of $122.94 on Monday. The consensus target price for the stock has risen from $102.67 in March—a rise of 13.0%.

Zoom’s growth projection

Zoom reported sales of $622.7 million in fiscal 2020—a rise of 88.4% YoY (year-over-year) from sales of $330.5 million in fiscal 2019. The company reported an adjusted EPS of $0.35 in fiscal 2020 compared to $0.06 in fiscal 2019. Wall Street analysts expected the company to report sales of $610.9 million and earnings of $0.27 in fiscal 2020. Last week, Zoom CEO Eric Yuan said in a blog post that the company’s daily users reached 200 million in March 2020 compared to 10 million users in December 2019.

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Wall Street analysts expect Zoom to report sales of $202.2 million in the first quarter of fiscal 2021. The figure would mark an increase of 65.7% YoY compared to $121.9 million in the first quarter of fiscal 2020. Also, analysts expect the company to report an adjusted EPS of $0.09 in the first quarter of fiscal 2021 compared to $0.03 in the first quarter of fiscal 2020. Currently, analysts expect a 49.3% and 32.8% rise in the company’s fiscal 2021 and 2022 revenues, respectively. Analysts also expect an adjusted EPS of $0.43 and $0.58 in fiscal 2021 and 2022, respectively.

Zoom’s stock performance

Zoom stock closed 4.0% below its 20-day moving average of $128.02 on Monday. However, the stock was 12.7% and 37.3% above its 50-day and 100-day moving averages of $109.12 and $89.52, respectively. Zoom’s 14-day MACD is -11.8, which indicates a downward trading pattern. With a 14-day RSI (relative strength index) score of 49, the stock isn’t oversold or overbought.

Zoom stock has an upper Bollinger Band level of $160.09. The company’s middle Bollinger Band level is $128.02, while its lower Bollinger Band level is $95.96. On Monday, Zoom stock closed near its middle Bollinger Band level, which also suggests that it isn’t overbought or oversold.

Currently, Zoom stock is trading at 286.65x its fiscal 2021 estimated EPS of $0.43. The stock is trading at 211.25x its fiscal 2022 estimated EPS of $0.58. Analysts expect Zoom’s earnings to grow at a CAGR of 32.5% over the next five years.

Read Zoom: Time to Get Rid of This ‘High-Flying’ Stock? to learn more.

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