Market Overview

P/E Ratio Insights for Zoom Video Communications

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In the current market session, Zoom Video Communications Inc. (NASDAQ: ZM) is trading at $505.60, after a 2.54% drop. However, over the past month, the stock spiked by 23.87%, and in the past year, by 654.29%. Shareholders might be interested in knowing whether the stock is overvalued, even if the company is not performing up to par in the current session.

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 from its 52 week high by 4.56%.

The P/E ratio measures the current share price to the company's earnings per share. 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.

Depending on the particular phase of a business cycle, some industries will perform better than others.

Zoom Video Communications Inc. has a better P/E ratio of 656.7 than the aggregate P/E ratio of 121.15 of the Software industry. Ideally, one might believe that Zoom Video Communications Inc. might perform better in the future than it’s industry group, but it’s probable 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.

 

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