Online storage specialist and global collaboration platform Dropbox (NASDAQ:DBX) is an underappreciated company with over 600 million registered users in 180 countries. Given the world’s irreversible trend towards distributed work and collaboration, the reward-to-risk balance of Dropbox stock becomes increasingly favorable.
This trend was already in progress prior to the onset of the novel coronavirus.
Yet, Dropbox’s value as a facilitator of remote collaboration became all the more apparent in the wake of the pandemic.
Viewed through this lens, it’s amazing that Dropbox stock isn’t more expensive. Could it be an undiscovered treasure waiting to be (please forgive me for the pun) unboxed?
Impressive fiscal results, combined with a campus connection that underscores Dropbox’s utility as a connector of businesses and people alike, should convince the skeptics that Dropbox stock deserves a higher price and will get it soon enough.
A Closer Look at Dropbox Stock
Back in the summer of 2018, the bulls were on full display as they pushed the Dropbox stock price to the $40 level. Those were good times for the bulls, but the euphoria didn’t last long.
In hindsight, we now know that Dropbox stock wasn’t meant to trade at $40 back then. Thus, the share price began a journey southwards, eventually reaching $14.55 this year.
After the onset of the coronavirus, an interesting thing happened to Dropbox stock. Specifically, the share price embarked on a series of wiggles and wobbles, giving short-term trades plenty of dip-buying opportunities.
For long-term investors, however, it’s been a frustrating journey. Dropbox stock trades today around $19.50. Perhaps in time, the trading community will recognize the true value of this forward-thinking company.
Indisputable Fiscal Results
It’s an odd situation because investors have handsomely rewarded providers of online collaboration tools like Docusign (NASDAQ:DOCU) and Slack Technologies (NYSE:WORK). Yet somehow, they haven’t shown the same love to Dropbox stock?
From a logical perspective, the share price ought to reflect Dropbox’s financial performance. The company’s fiscal second-quarter stats should sway the opinion of any skeptic:
- $467.4 million in total revenues, representing a 16% year-over-year improvement
- 15 million paying users at the end of the quarter, compared to 13.6 million paying users at the end of 2019’s second fiscal quarter
- $126.88 in average revenues per paying user; this figure was only $120.48 during the same period last year
- $145.9 million in net cash provided by operating activities, compared to $128.8 million from the comparable period of the prior year
- $119.8 million in free cash flow, showing an improvement over the free cash flow of $95.1 million posted during the analogous period of 2019
As rational thinkers like to say, the numbers don’t lie. And if you’re wondering how Dropbox could post such outstanding numbers during a global pandemic, consider the irreversible changes in how people work, collaborate and communicate.
Then consider how purpose-built Dropbox was, and is, for this unusual situation.
This Door Only Goes One Way
The implications of the shift to distributed work were summed up brilliantly and succinctly by none other than Dropbox CEO and co-founder Drew Houston:
“When you think more broadly about the effects of the shift to distributed work, it will be felt well beyond when we go back to the office. So we’ve gone through a one-way door. This is maybe one of the biggest changes to knowledge work since that term was invented in 1959.”
I really like Houston’s one-way door analogy (and as a writer, I’m a tad jealous that he came up with it). Now that companies and people prefer to work “together” at a distance, Dropbox’s place in the business ecosystem should be assured for years to come.
I’ll give you a more concrete example of what I’m talking about. Dropbox recently announced a collaboration with the University of Michigan. Together, they’ll be deploying Dropbox Education on a campus-wide basis.
This collaboration should benefit all parties involved. Instructors can easily will easily and instantly be able to track deadlines, share updated materials and highlight upcoming projects. Students will be able to download files, participate in coursework and work together on projects from just about anywhere.
And, administrators will be able to track all of this activity. As you can see, the one-way door is already in full effect within the education sector, just as it is elsewhere.
The Bottom Line
It’s hard to imagine that Dropbox stock won’t trade at $40 again someday. There’s no telling when this will occur since markets can remain irrational for quite a while.
Until Dropbox stock gets the attention it deserves, the price could remain low. After all, the stock market is a test of patience. How can you pass this test? Buy shares of undervalued companies and hold them.
With Dropbox stock, the door might be one-way, but it’s still open.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
