A Peek Into Zoom Video's Price/Earnings Ratio

Shareholders are looking into Zoom Video Communications Inc. ZM’s P/E Ratio, as the share price went up in the previous regular session.

In the most recent market session, the share price posted a 1% decrease from its closing price of $151.70. Over the past month, Zoom Video Communications stock increased by 31.00%, and in the past year, by 148.21%. With performance like this, long-term shareholders are optimistic but others are more likely to look into the price-to-earnings ratio to see if the stock might be overvalued.

Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently below its 52 week high by 8.03%.

The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.

Most often, an industry will prevail in a particular phase of a business cycle, than other industries.

Compared to the aggregate P/E ratio of 17.84 in the telecom services industry, Zoom Video Communications has a higher P/E ratio of 1685.56. Shareholders might be inclined to think that Zoom Video Communications might perform better than its industry group. It’s also possible that the stock is overvalued.

There are many limitations to P/E ratio. It is sometimes difficult to determine the nature of the earnings makeup of a company. Shareholders might not get what they're looking for, from trailing earnings.