Here’s what else you need to know about why Zoom Video Communications, Inc. (ZM) is a trending stock | Panda Anku

Zoom video communication (ZM) has been one of the most searched stocks on Zacks.com lately. So, you should look at some of the facts that could affect the stock’s performance in the short term.

Over the past month, shares of this video conferencing company are down -19.3% compared to a +6.1% change in the Zacks S&P 500 Composite. During that period, the Zacks Internet software industry, which includes Zoom Video, is up 9.3%. The crucial question now is: What could the future direction of the stock be?

Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.

Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As earnings estimates for a company increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to move higher. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Zoom Video is expected to report earnings of $0.84 per share for the current quarter, a -24.3% year-over-year change. In the last 30 days, the Zacks consensus estimate has changed by -39.1%.

The consensus earnings estimate of $3.71 for the current fiscal year indicates a change of -26.8% year-on-year. This estimate has changed by -25.4% in the last 30 days.

For the next fiscal year, the consensus earnings estimate of $3.75 indicates a +1% change from what Zoom Video was expected to report a year ago. Over the past month, the estimate has changed by -9.1%.

With an impressive, third-party audited track record, our proprietary stock ranking tool – the Zacks Rank – is a more meaningful indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, has resulted in a Zacks #3 rank (Hold) for Zoom Video.

The chart below shows the development of the company’s 12-month consensus EPS estimate:

12 Month EPS

Sales Growth Forecast

As such, while earnings growth is arguably the best indicator of a company’s financial health, nothing happens when a company is unable to grow its earnings. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without increasing sales. Therefore, it is important to know a company’s potential revenue growth.

For Zoom Video, the consensus revenue estimate for the current quarter of $1.1 billion indicates a +4.4% year-over-year change. For the current and next fiscal years, estimates of $4.39 billion and $4.83 billion indicate changes of +7% and +9.9%, respectively.

Latest reported results and surprise history

Zoom Video reported revenue of $1.1 billion for its most recent reported quarter, a +7.6% year-over-year change. EPS of $1.05 for the same period compared to $1.36 a year ago.

Compared to the Zacks Consensus estimate of $1.12 billion, reported earnings represent a surprise of -1.51%. EPS surprise was +14.13%.

The company beat consensus estimates for earnings per share in each of the last four quarters. The company topped consensus estimates for sales three times during that period.

valuation

No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S), and Price to Cash Flow (P/CF), with its own historical values ​​help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Zoom Video is rated C on this front, indicating it trades on par with its peers. Click here to view the values ​​of some of the assessment metrics that led to this grade.

bottom line

The facts discussed here and plenty of other information on Zacks.com could help determine whether or not the market buzz about Zoom Video is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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