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PreMarket Prep Stock Of The Day: Zoom Video

PreMarket Prep Stock Of The Day: Zoom Video

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

There are several companies that have benefited from the pandemic, which has ushered in the "work-from-home era." Perhaps no company has prospered more in this environment than Zoom Video Communications Inc (NASDAQ: ZM), making it the PreMarket Prep Stock Of The Day.

The Company: Zoom Video provides a communications platform that connects people through video, voice, chat, and content sharing. The company's cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting.

Winner Off IPO: Zoom Video made its debut in April 2019 and immediately put in a double bottom at the $60 area in its first trading sessions, a level that may never be revisited. It rallied to $107.34 by June, but retreated to its early low reaching $60.87 in August, and ended the year just above that at $68.04.

It followed the market higher in January and February and initially followed the market lower, but found a bottom 10 days ahead of the S&P 500 index on March 9 at $100.88. The issue came near that low on March 16, only reaching $102, before exploding to end the month at $146.12.

The rally stalled in April but resumed in May and crossed $300 in August and had a bulk of its gains in September, climbing from $325.10 to $457.68. The issue has made a new all-time high in Thursday’s session, $540.05 as 1 p.m. ET.

For Now, Valuation Does Not Matter: The issue has a market capitalization of $133 billion and a forward price/earnings ratio of 172 compared to the industry average of 73.86. St this time, it doesn't matter. The company has a ”story” and certainly momentum on its side and that is likely to continue until the growth slows.

From its first earnings report for Q1 2019, when it earned 4 cents on $12 million in sales, it blossomed this past quarter to 92 cents per share on $663.52 million in sales. As long it exhibits that kind of explosive growth, shareholders will continue to be rewarded by owning the issue. However, when it exhibits any kind of slowdown, which is inevitable at some point, the issue will take a tumble.

Also, with such a low barrier to entry in the space, one has to ponder whether or not a rival platform will come along eventually.

No Touch For Show Hosts: There are some issues where one PMP host gets the right and the other gets it wrong. Following the retreat from late in the day on Wednesday, the hosts thought the issue may fall under $500, perhaps to the bottom of the recent trading range at the $475 area. However, a price target raises at BTIG from $500 to $560 and Bank Of America to a Street-high of $570 has the bulls in firm control in Thursday’s session.

From a long-term perspective, Dennis Dick is on the sidelines.

“The issue is priced beyond perfection and yes, valuation does not matter until it does,” said Dick. "I am confident to say that valuation will eventually catch up to the issue and it will be significantly lower two years from now.”

The full discussion on the issue from today’s show can be found here.


Latest Ratings for ZM

Oct 2020B of A SecuritiesMaintainsBuy
Oct 2020BTIGReiteratesBuy
Oct 2020Wells FargoMaintainsEqual-Weight

View More Analyst Ratings for ZM
View the Latest Analyst Ratings


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