It’s been a busy earnings season and workplace-communications software provider RingCentral (NYSE:RNG)’s second-quarter results were overshadowed by the reports of more famous companies. That’s unfortunate because this company is worth looking into and investors should seriously consider taking a position in RingCentral stock today.
If you like to “buy on the dips” in the stock market, you should appreciate the great setup with RingCentral stock. Some of the most buy-able dips occur when the market reacts irrationally to a company’s earnings data.
It’s a terrific opportunity when a company posts strong data yet the market sells the stock anyway. That’s the time to jump into the long side of the trade in anticipation of a correction to the upside.
A deeper dive into RingCentral, both the company and the stock, will reveal a mismatch between the fiscal data and the market’s response. Value-focused traders will definitely want to pay attention as there’s no valid reason for the share-price dip.
A Closer Look at RingCentral Stock
On Aug. 3, RingCentral stock was riding high at more than $305 per share. That’s an amazing feat considering the stock’s 52-week low price is $120.03.
Then came RingCentral’s second-quarter earnings report on Aug. 4. Judging by the price action of the stock, one might conclude that the earnings data was terrible.
The RingCentral share price tumbled to the $260 area over the next few days. It settled at exactly $269 at the end of the week. Value-oriented investors might view the share-price reduction as a good thing. Yet, there might be cause for concern if the market is fearful about this company.
The billion-dollar question, then, revolves around the earnings data. Informed investors should analyze the data and decide whether the market’s reaction was sensible or simply irrational.
A Work-from-Anywhere Winner
Providing software-as-a-service solutions for workplaces that use video conferencing is a great business to be in today. The onset of the novel coronavirus, while tragic and unfortunate, has boosted the bottom lines of companies that facilitate video conferencing.
You might have seen the positive impact that this phenomenon has had on Zoom Video Communications (NASDAQ:ZM) stock. By and large, businesses’ shift to video conferencing has also benefited stakeholders in RingCentral.
It shouldn’t be too surprising, then, that RingCentral had a stellar second quarter. The company’s CEO, Vlad Shmunis, proudly declared that RingCentral “delivered solid Q2 results” and saw “a high level of adoption and engagement with our Message Video Phone (MVP) solution as businesses adapt to a work from anywhere environment.”
Oppenheimer analyst Brian Schwartz added some praise of his own for RingCentral’s second quarter as it “displayed record new customer adds and big deals.” With that, Schwartz reaffirmed his “buy” rating on RingCentral stock while assigning it a $330 price target.
RingCentral Beats the Street
It’s bizarre and unreasonable that the market sold RingCentral stock after the company released its quarterly fiscal data. Feast your eyes on these stats:
- Non-GAAP earnings per share of 24 cents, beating the consensus estimate by 4 cents
- Revenue of $278 million, beating Wall Street’s estimate by $14.22 million; this also indicates a year-over-year increase of 29%
- $257 million in revenue from subscriptions, marking a year-over-year increase of 32%
- $1.1 billion in Total Annualized Exit Monthly Recurring Subscriptions (ARR), signifying a 33% year-over-year improvement
On the negative side of the equation, Schwartz pointed out that RingCentral’s “guidance implies some growth deceleration in the 2H:2020.” Specifically, the company guided for $283.5 million to $289.5 million in third-quarter revenue.
Apparently, that guidance might not have impressed market participants. It could have been their excuse to dump their shares. If so, then you can gladly pick up some of those shares and stay focused on the highly encouraging fiscal data.
The Bottom Line
We don’t have to fret when a stock slips for no valid reason. RingCentral stock dropped post-earnings, and that’s not a problem but an opportunity. The company’s fiscal stats look great and a strong revenue generator like RingCentral should continue to provide excellent value to shareholders.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.