Zoom Stock Gains Momentum: Analysts See Further Upside
Despite a rapidly evolving market, Zoom Communications (ZM) has recently captured investor attention, appearing on Zacks.com’s list of most searched stocks. A closer look at the video-conferencing company’s recent performance and future projections suggests potential for continued growth in the near term.
Over the past month, Zoom shares have delivered a return of +3.6%, outpacing the Zacks S&P 500 composite’s +1.8% change. The Zacks Internet – Software industry, to which Zoom belongs, has also experienced gains, rising 1.8% over the same period. This positive trajectory prompts the question: where is Zoom stock headed next?
While short-term market fluctuations are often driven by news and speculation, fundamental factors ultimately dictate long-term investment decisions. According to experts at Zacks, the most critical element in evaluating a company’s potential is the projection of its future earnings. “We believe the present value of its future stream of earnings is what determines the fair value for its stock,” one analyst stated.
The firm’s methodology focuses on tracking revisions to earnings estimates made by sell-side analysts. Increases in these estimates signal positive momentum and typically translate to higher fair values and increased investor interest. Empirical research supports this approach, demonstrating a strong correlation between earnings estimate revisions and near-term stock price movements.
Currently, Zoom is projected to report earnings of $1.48 per share for the current quarter, representing a +5% increase year-over-year. Importantly, the Zacks Consensus Estimate for this quarter has risen +8% over the last 30 days. Looking ahead to the current fiscal year, the consensus earnings estimate stands at $5.94 per share, a +7.2% year-over-year change, with a +5.5% revision over the past month. For the next fiscal year, the consensus estimate is $5.93, a slight decrease of -0.2% from the expected year-ago figure, but still reflecting a +1.9% increase in estimates over the last 30 days.
Leveraging this data, Zacks’ proprietary stock rating tool, the Zacks Rank, has assigned Zoom a #2 (Buy) rating. This ranking is based on the magnitude of recent changes in consensus estimates, alongside other earnings-related factors.
While earnings growth is paramount, revenue growth is equally crucial for sustained financial health. Zoom’s consensus sales estimate for the current quarter is $1.23 billion, a +4% year-over-year increase. Estimates for the current and next fiscal years project revenues of $4.85 billion and $5 billion, respectively, representing growth rates of +3.9% and +3.2%. In the last reported quarter, Zoom exceeded expectations, reporting revenues of $1.23 billion – a +4.4% year-over-year increase – and EPS of $1.52, compared to $1.38 in the same period last year. The company has consistently surpassed consensus estimates, exceeding revenue projections in each of the trailing four quarters and EPS estimates in the same timeframe, with a revenue surprise of +1.4% and an EPS surprise of +6.29% in the most recent quarter.
No investment decision is complete without a thorough valuation assessment. Determining whether a stock’s price accurately reflects the underlying business’s intrinsic value and growth potential is critical. Comparing a company’s current valuation multiples – such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) – to its historical values and those of its peers provides valuable insight. Zoom currently receives a “C” grade on the Zacks Value Style Score, indicating it is trading at a level comparable to its peers. More detailed valuation metrics can be found [here](Click here to see the values of some of the valuation metrics that have driven this grade.).
The information discussed here, alongside comprehensive data available on Zacks.com, can help investors assess the potential of Zoom stock. However, the Zacks Rank #2 suggests the stock is poised to outperform the broader market in the near term.
Investors seeking further recommendations can download Zacks Investment Research’s report, “7 Best Stocks for the Next 30 Days,” [here](Click to get this free report Zoom Communications, Inc. (ZM) : Free Stock Analysis Report).
This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research.
