The novel coronavirus closed offices around the globe in March. Ever since, we’ve all been working from home. Demand for remote work solutions has soared. So have work-from-home stocks.
Make no mistake. Working from home is not a fad that will go away once Covid-19 disappears. For many, remote work is a permanent lifestyle change that will stick around long after this pandemic is old news.
Because it’s 2020. Because we have the internet, smartphones, tablets and computers. All of which can be installed with cloud-hosted productivity and communication software. And this software enables employees to do all the work they were doing in the office from the comfort of their own homes.
And if those employees can be just as productive at home as they were in the office, then why would a company pay big dollars for office space?
It’s a win-win situation. Employees get to stay home. Businesses get to cut expenses.
Of course, not all companies will embrace the work-from-home trend. Many physically cannot. Think restaurants, retail shops or hotels.
But enough will that today’s work-from-home stocks will stay red-hot for the next several years.
With that in mind, let’s take a closer look at 10 work-from-home stocks that are beating the Covid-19 pandemic in 2020:
- Slack (NYSE:WORK)
- Zoom (NASDAQ:ZM)
- RingCentral (NYSE:RNG)
- Twilio (NYSE:TWLO)
- Okta (NASDAQ:OKTA)
- Inseego (NASDAQ:INSG)
- Microsoft (NASDAQ:MSFT)
- DocuSign (NASDAQ:DOCU)
- Dropbox (NASDAQ:DBX)
- Atlassian (NASDAQ:TEAM)
Work-From-Home Stocks: Slack (WORK)
One of Wall Street’s favorite work-from-home stocks has been Slack.
The enterprise communications software provider has seen demand for its services soar thanks to remote work tailwinds. Last quarter, the company reported 28% customer growth and 50% revenue growth.
Wall Street has cheered the results. Year-to-date, WORK stock is up 44%.
But chasing this rally here and now seems risky.
Work-from-home tailwinds will persist over the next several years. But from where they sit today, they will likely moderate in the back-half of 2020 as some offices reopen. Indeed, Slack’s second-quarter guide calls for decelerating revenue growth to roughly 43%. Worse yet, the full-year guide calls for revenue growth to slow to roughly 37%.
Amid slowing growth trends, the extended valuation on WORK stock (26 times forward sales) may start to rear its ugly head.
Zoom Video Communications (ZM)
Another one of Wall Street’s favorite work-from-home stocks has been Zoom.
When offices closed and business people stopped traveling, Wall Street recognized that demand for video teleconferencing software — which allows companies to conduct business without travel — would soar. Zoom is widely considered the leader when it comes to high-quality enterprise video teleconferencing software. Consequently, Wall Street bid up ZM stock with a fervor over the past six months.
Year-to-date, ZM stock is up about 280%.
Much like the rally in WORK stock, the rally in ZM stock has come too far, too fast.
Yes, video teleconferencing software is on its way to reaching global ubiquity. Also, yes, Zoom is the leader in the market, and will see its customer base, revenues and profits soar over the next several years.
But this is now a $70 billion company that’s slated to do less than $2 billion in sales this year.
That valuation is simply too rich. Eventually, the story here will show some cracks, probably as demand trends slow thanks to more widespread office reopenings in the coming months. When it does, today’s valuation friction will rear its ugly head, and Zoom stock will drop.
A cloud unified-communication-as-a-service (UCaaS) company, RingCentral has won big in 2020 as enterprises of all shapes and sizes have pivoted toward digital communications amid the Covid-19 pandemic.
In the first quarter of 2020, RingCentral reported impressive 33% year-over-year revenue growth.
This demand surge won’t slow anytime soon. The future of enterprise communication is digital. The cloud UCaaS space will continue to see significant growth over the next several years, long after Covid-19 passes and offices reopen. Companies like RingCentral who provide cloud UCaaS services will continue to see their platforms grow.
Having said all that, the valuation on RNG stock is rich. At 23 times trailing sales and 300 times forward earnings, RNG stock is not cheap.
Investors can probably wait for a better opportunity to buy into this red-hot growth stock.
Cloud communications leader Twilio has morphed into one of the strongest work-from-home stocks in the market because demand for its cloud communications APIs has become increasingly mission-critical to enterprises in a world where physical offices are shut down.
On the back of increased demand, TWLO stock has risen 130% year-to-date.
I think this big rally can continue. For two big reasons.
First, fundamental growth trends will remain strong. Twilio’s cloud communications APIs allow for enterprises to seamlessly and instantaneously communicate everywhere, all the time. That’s a huge value add. Both today, in a world where offices are closed, and in the future, in a world where offices reopen. Thus, Twilio is less of a work-from-home play, and more of a “making enterprise communication more efficient” play.
The former tailwind may moderate. The latter won’t. Thus, by aligning itself with the latter, Twilio is guaranteeing itself strong growth for the foreseeable future. The news flow will remain overwhelmingly positive. Earnings reports will continue to smash expectations. Management’s guides will continue to impress. The company will broadly keep firing on all cylinders.
Second, the valuation on TWLO stock isn’t extended enough to offset robust fundamental momentum. Sure, the 24 times trailing sales multiple is rich. But many of the other work-from-home stocks on this list — like Zoom — trade at 50-times-plus sales multiples.
TWLO stock should be able to shake off minor valuation headwinds over the next few months and keep pushing higher.
Okta has essentially created a novel cloud security platform, dubbed Identity Cloud, which is the perfect security solution for enterprises in the work-from-home environment.
Okta’s Identity Cloud is built on the idea that all you need to do to secure a workplace, its data and its workflows, is secure its employees. So, as opposed to building a castle of security around a company’s data and workflows (which is the traditional security standard), Okta uses its Identity Cloud solution to outfit each employee with their own body armor.
Why do this? Because it enables employees to leave the “castle” and still be safe. They can securely access important company workflows and information from anywhere, at any time.
Of course, in today’s Covid-19 world, this security solution is mission-critical. But, bigger picture, once Covid-19 passes, Okta’s demand tailwinds will remain robust, because employee mobility and workflow flexibility are of increasing importance to the enterprise.
To that end, Okta will see demand for its breakthrough Identity Cloud platform soar both now, and for the foreseeable future.
At present, OKTA stock isn’t richly valued enough to offset these favorable long-term growth prospects. Consequently, OTKA stock should stay in rally mode.
Inseego is different from the other work-from-home stocks on this list in that the company actually provides hardware which enables a more seamless work-from-home experience for employees.
That is, Inseego makes things like fixed wireless access (FWA) routers and mobile hotspot devices which improve at-home WiFi and internet connectivity for employees.
Obviously, demand for these devices is surging as remote work trends gain traction.
But, the more interesting upside driver here is 5G. Inseego is a specialist when it comes to making 5G FWA routers and 5G mobile hotspot devices. Demand for these devices will surge over the next few years, boosted both by remote work trends and increasing standardization of enhanced 5G connectivity.
Inseego has a bright future over the next few years. During that stretch, INSG stock should outperform.
The biggest company on this list, Microsoft, also doubles as one of the strongest work-from-home stocks in the market.
Across the entire work-from-home spectrum, enterprises provide cloud-hosted solutions which enable and optimize the remote work experience. This includes cloud-hosted infrastructure through Azure, cloud-hosted productivity solutions through Office 365 and cloud-hosted communications through Teams.
Demand for all these solutions is currently soaring and will continue to soar for the foreseeable future.
As it does, Microsoft’s overall cloud business will continue to fire on all cylinders.
Historically, as go Microsoft’s cloud businesses, so goes MSFT stock. I suspect this will remain true for the foreseeable future. If so, then MSFT stock will keep grinding higher on increasing cloud momentum.
As offices across the globe have closed over the past several months, enterprise demand for DocuSign’s digital contract management solutions — which enable companies to digitally create, edit and sign documents — has soared. In the first quarter of fiscal 2021, DocuSign reported 30% customer growth, 40% revenue growth and 60% billings growth.
These strong demand trends have paved the way for DOCU stock to rally 165% in 2020 to all-time highs.
But such strong demand trends will likely weaken over the next few quarters for two big reasons.
First, demand here is front-loaded. It’s now been five-plus months since offices have closed. Most savvy enterprises have already signed up for digital document solutions by now.
Second, the global economy is slowly normalizing. In places where the virus is “under control” — like New York City — employees are returning to the office, albeit slowly. This gradual flow of employees back into the physical workplace will somewhat undermine the company’s strong remote work tailwinds that were unobstructed for several months.
As such, over the next six to 12 months, I see DocuSign’s growth narrative meaningfully decelerating from where it was in the first quarter. That’s a problem for DOCU stock, which is trading at 33 times trailing sales, 270 times cash flow and 420 times forward earnings.
In other words, DOCU stock is priced for absolute perfection. Meaningful deceleration is not absolute perfection. Consequently, the convergence of slowing growth on a rich valuation could cause significant pain in DOCU stock over the next six to 12 months.
In my opinion, the best work-from-home stock to buy right now is Dropbox.
That’s because, despite its secure storage and project management solutions being very important to the remote work environment, Dropbox stock has significantly lagged peer work-from-home stocks in 2020. Plus, it trades at a significantly discounted valuation to the group.
The likes of Atlassian and Slack are up more than 50% year-to-date. Twilio and DocuSign are up more than 100% year-to-date. Zoom is up more than 250%.
Dropbox, by comparison, is up just 13% in 2020.
Meanwhile, DBX stock trades at 28 times forward earnings. WORK stock trades at nearly 30 times forward sales. TEAM stock trades at 130 times forward earnings. ZM stock trades at 205 times forward earnings. DOCU stock trades at 420 times forward earnings.
In a sea of richly valued work-from-home stocks, DBX stock stands out at as the one attractively valued name in the group.
This attractive valuation coupled with year-to-date underperformance lays the groundwork for Dropbox stock to outperform meaningfully in the second half of 2020.
Last, but not least, on this list of strong work-from-home stocks beating Covid-19 is Atlassian.
The Australian enterprise software company has seen demand for its digital workflow management tools — which broadly help companies manage and collaborate on projects, regardless of location — soar amid physical office closures.
In the big picture, this is a winning company.
Atlassian sells huge value-add solutions. At a time when demand for those solutions is soaring. The business model, built on word-of-mouth recommendations and a land-and-expand growth strategy, is genius. The financials are attractive, with gross margins up above 85%. So is the market opportunity, as Atlassian has identified 1 million businesses who could use its solutions (and the company only has roughly 171,000 customers today).
But TEAM stock is also richly valued. This is a $40 billion company that’s slated to do less than $2 billion in sales next year. So beware of valuation risks. And don’t let fear of missing out drive you into the right stock at the wrong price.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long TWLO, OKTA and MSFT.