Bull of the Day: Zoom Video Communications (ZM)

Zoom Video Communications' ZM cloud-native unified communications platform, which combines video, audio, phone, screen sharing, and chat functionalities, makes remote-working and collaboration easy.

The stock is a current Zacks Rank #1 (Strong Buy) thanks to favorable EPS revisions, as shown below. The trend has been notably bullish for its current fiscal year, with the $5.96 Zacks Consensus EPS estimate suggesting roughly 8% YoY growth.

The stock also resides in the Zacks Internet - Software industry, which is currently ranked in the top 27% of all Zacks Industries.

Zoom Bounces Back?

Most are familiar with Zoom due to the pandemic, and its platform was a big reason many companies were able to continue their operations uninterrupted during lockdowns. The stock suffered post-pandemic due to a growth cooldown but has shown strong signs of a turnaround over the past six months, gaining nearly 8%.

As shown below, the company’s YoY sales growth rates have turned around nicely over recent periods, reflecting broader momentum.

In addition, Zoom’s growing efficiency over recent years can’t be overlooked, with margins regularly improving. Please note that the chart below tracks margins on a trailing twelve-month basis.

Shares have also come way off their rich valuations seen during the period, with the current 13.7X forward 12-month earnings multiple a fraction of the 49.6X five-year median and five-year highs of 246.3X. Shares certainly got a bit ‘ahead’ of themselves on valuation, but the normalization now provides a shield against any growth shocks.

There were several notable highlights in its latest quarterly release, with ZM now having more than 4.3k customers contributing more than $100,000 in trailing twelve-month revenue, up 9.2% from the same period last year. Importantly, its cash-generating abilities have also continued to improve, with operating cash flow soaring to $630 million compared to a $483 million print last year.

Bottom Line

Investors can implement a stellar strategy to find expected winners by taking advantage of the Zacks Rank – one of the most powerful market tools that provides a massive edge.

The top 5% of all stocks receive the highly coveted Zacks Rank #1 (Strong Buy). These stocks should outperform the market more than any other rank.

Zoom Video Communications ZM would be an excellent stock for investors to consider, as displayed by its Zack Rank #1 (Strong Buy). 

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This article originally published on Zacks Investment Research (zacks.com).

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