According to TechRepublic, Zoom commands about 50 % of the ball-shaped marketplace for video recording call platforms, placing the company at the vanguard of the layman emergence diligence. It ‘s potential that the pandemic will have a permanent affect on our working environment, as many companies will be more open to a elastic work schedule moving advancing. With Zoom well-positioned to capitalize on that raw world as a leader in the space, is today a great time to consider buying the party ‘s standard ?
A rough start to 2022 despite strong financial performance
Zoom shares have lost over 60 % of their value in the past six months as function of a broader technical school sell-off in response to rising interest rates and ostentation. gross and earnings increase remain strong — analysts are bode gross and earnings per share to grow by 54 % and 46 % class over year up to $ 4.1 billion and $ 4.87 per plowshare in fiscal year 2022, respectively. soar has about no debt, boasting a debt-to-equity proportion of 2 % and a strong cash stead of $ 1.3 billion. The company besides grew exempt cash flow by over 1,100 % in fiscal year 2021 up to $ 1.4 billion. The significant climb in barren cash stream was a result of brilliant gross growth stemming from pandemic-driven demand .
There is one caution deserving mentioning — Zoom ‘s growth in the coming years is expected to let up importantly from current levels. As the pandemic unwinds and Zoom becomes a more mature caller, it ‘s inevitable that sales increase will come down from its all-time highs. Analysts are forecasting Zoom ‘s tax income to come in at $ 7.7 billion in fiscal year 2026, indicating an modal annualized growth of 13 % from 2022 estimates. Double-digit tax income growth for the adjacent five years surely is n’t bad, but it does n’t compare to the company ‘s 160 % compound annual growth pace over the past three years.
On the earnings front, Wall Street analysts are forecasting an average annualized growth of 28 % over the following five years up to an earnings per share of $ 6.21 per share in fiscal year 2026. This is more favorable than Zoom ‘s expected top-line scenario, but many investors still might be hesitant to pay a exalted valuation for the company when taking into account the deceleration in growth .
Valuation is shrinking, but still not enough
Zoom ‘s valuation has surely contracted, but it ‘s silent not desirable when observing the company ‘s peer group. today, Zoom is trading at 31.6 times earnings, whereas top competitors like Cisco ( CSCO -1.88 % ), Microsoft ( MSFT -2.71 % ), and Alphabet ( GOOGL -2.44 % ) ( GOOG -2.33 % ) are trading at price-to-earnings multiples of 20, 31, and 24, respectively. Given the have a bun in the oven slowdown in Zoom ‘s growth, I think it ‘s safe to say that the party is even trading at expensive valuation multiples .
Zoom ‘s financials remain firm, but I think the company needs to improve future growth prospects to justify trade at current valuation multiples. With tax income and earnings increase expected to pull back in the years ahead, I would n’t be surprised to see growth-oriented investors exit their positions in Zoom store. The slowdown in growth, combined with ongoing macroeconomic headwinds and geopolitical concerns, will put extra down pressure on Zoom ‘s valuation for the foreseeable future .
Is it time to buy Zoom?
As a long-run investor, I do n’t ignore past performance, but I ‘m by and large more matter to in where the company is heading. Zoom has provided investors with dramatic growth and returns in the past couple of years ; however, I do n’t see that continuing into the future. The pullback in pandemic-driven demand, in accession to increased rival from massive technical school companies like Microsoft and Alphabet, will challenge Zoom ‘s commercial enterprise moving from here on out. With growth expected to hit the breaks in the years ahead, the company will probable become less attractive to investors who bought into Zoom ‘s increase fib.
In addition to that, I do n’t think Zoom is presently trading at an attractive-enough valuation — investors who are still excited about the stock may be wise to wait for a larger decline before considering an investment. Zoom ‘s future does n’t look quite equally bright as it once did .