Zoom Video Communications, Inc. (ZM) shares rallied nearly 5% in Tuesday's session after The Wall Street Journal reported that part-time and full-time employees of salesforce.com, inc. (CRM) will continue to work remotely after the pandemic runs its course. It was the shot-in-the-arm needed by the popular virtual meeting provider, which entered a correction with other COVID beneficiaries when Pfizer Inc. (PFE) announced positive results for its vaccine in November.
- Zoom rallied after The Wall Street Journal reported that salesforce employees would work from home after the pandemic.
- Zoom stock is recovering from a deep intermediate correction.
- The company is broadening its product suite to build new revenue sources.
- Wall Street consensus on Zoom has deteriorated in the past three months.
Bill Gates shocked common consensus last year when he stated that remote work was here to stay and that as many as 30% to 50% of white-collar employees would work from home in coming years. Although his conclusions made perfect sense, given huge potential savings in travel budgets and office rentals, market players have remained narrowly focused on the elusive "return to normalcy" expected in the second half of 2021.
Even so, no one expects Zoom to duplicate its torrid 2020 growth rate in coming years, forcing a revaluation based on more realistic long-term forecasts. That could be good enough to lift the stock back to the 2020 peak, or even trigger another trend wave. The outcome is likely to depend on the company's ability to leverage its pandemic success and broad customer base with new collaborative products that include Zoom Phone.
Wall Street consensus has dropped to an "Overweight" rating after historic share gains, based upon nine "Buy," two "Overweight," and 15 "Hold" recommendations. Two analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $340 to a Street-high $610, while the stock is set to open Wednesday's session about $18 below the median $450 target. Additional upside is achievable with this humble placement.
Growth rates refer to the percentage change of a specific variable within a specific time period. For investors, growth rates typically represent the compounded annualized rate of growth of a company's revenues, earnings, or dividends – or even macro concepts such as gross domestic product (GDP) and retail sales. Expected forward-looking or trailing growth rates are two common kinds of growth rates used for analysis.
Zoom Daily Chart (2019 – 2021)
The company came public in the mid-$60s in April 2019, yielding an immediate uptrend that topped out just above $100 in June. It fell back to the IPO opening print in the fourth quarter and hovered around that level into a January uptick that broke out to a new high in February. The momentum crowd entered the stock in March, setting off high-volatility and two-sided action into May, when Zoom stock took off in a historic uptrend that initially topped out in July in the $280s.
The stock broke out once again in August, nearly doubling in price into October's all-time high at $588.84. Aggressive sellers took control through November, dropping price more than 230 points into the $360s. It broke support at that level in December and filled the Sept. 1 gap on Jan. 12, tagging 200-day exponential moving average (EMA) support at the same time. Cautious buyers then returned, carving two rally waves that have now reached the .382 Fibonacci selloff retracement level.
The recovery wave has also reached resistance at the unfilled Dec. 1 gap between $435 and $460, raising the odds for a short-term reversal. New support at the 50-day EMA at $390 should contain the downside, potentially offering a low-risk buying opportunity. However, new buyers need to be patient because the monthly stochastic oscillator is engaged in an active sell cycle, predicting two-sided action well into the second quarter.
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.
The Bottom Line
Zoom stock is gaining ground after a steep intermediate correction and could work its way back to 2020's all-time high in coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.