Zoom (NASDAQ.ZM) is a video-first platform for communication that has grown tremendously in the wake of the pandemic. The stock is a strong investment.

Performance

Although Zoom stock was initially listed on NASDAQ in 2019, it only started to rally after it experienced lockdowns from the pandemic. Zoom gained by a total of 450% in 2020, but has drawn down to lose roughly 25% of its value year-to-date.

As investors reacted to the profits, the sell-off was natural. They also had to face the realities of increasing competition and that working from home wouldn’t work for them.

Zoom has officially become oversold with its RSI trading near 30. After the August second quarter earnings beat, Zoom suggested that its growth was still far from finished. Zoom managed to produce revenue of $1.02B (+53.7% Y/Y) and an EPS of $1.04 during the quarter.

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Five9 (NASDAQ). Deal

The soon-to-be tech giant was all but set to acquire cloud software company Five9 (NASDAQ:FIVN) in a deal worth $14.7 billion, but Five9’s shareholders rejected the approach.

Zoom would have gained another revenue stream in this hypergrowth market, but Zoom is growing organically fast enough to be competitive in video conferencing. It also has sufficient cash to purchase other targets if necessary.

Zoom must follow the FAANG Stocks’ model for growth. But there are other deals that will come along and Zoom is not required to merge with Five9.

The Key Metrics

The PEG ratio is important. PEG ratios below 1.01 indicate that a stock’s growth rate is greater than the stock’s price. Zoom is in hypergrowth mode with a PEG 0.24.

Zoom’s diluted EPS is also anticipated to grow by 139.63% over the next year, while its operating cash flow is projected to grow by 135.06%. These rates of growth will surely pull the stock price down, particularly considering the low PEG.

Wall Street Take

Wall Street considers Zoom a Moderate Buy with an average Zoom price target at $364.30. Stock has been given 10 buy ratings, 8 holds ratings and none sell ratings. If analyst price targets become a reality, investors could see an increase of over 40% over the next twelve months.

Last Thoughts

Zoom might be the time to get in again. Although the stock may have fallen for some time, it has created an excellent dip-buying opportunity. It’s a shame that the Five9 deal was not completed, however the company continues to have both organic growth opportunities and potential acquisition opportunities.

Disclosure: Steve Gray Booyens had no position in the securities listed in this article at the time it was published.

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