Despite its exposure to the “stay at home economy,” Dropbox (NASDAQ:DBX) hasn’t really set the world on fire. Sure, in the months following March’s novel coronavirus stock market crash, shares bounced back from their lows. But, compared to other tech names with pandemic tailwinds, Dropbox stock returns weren’t exactly earth-shattering.
And now, with shares heading toward prior lows, is now the time to buy? Sure, this data storage play remains large out of favor with investors. And that’s no surprise, given the competitive risks from large rivals like Microsoft (NASDAQ:MSFT) and the FAANG stocks.
Yet, there’s more to this business than simply data storage. With its platform a valuable service to decentralized, remote workspace, the continued acceleration of the “work from home” megatrend may mean it’s projected growth stays on track.
And, as solid quarterly results continue, investors could start warming up to this under-loved name once again. Granted, don’t expect parabolic moves anytime soon. But, compared to the “hotter” tech stocks out there, this could be a great long-term opportunity at today’s prices.
Dropbox Stock, Near-Term Headwinds, and What’s Next
Shares may have surged higher, albeit at a slower pace than the other tech names, in the months following March’s coronavirus crash. But, after releasing its quarterly results in August, this muted enthusiasm dissipated.
It wasn’t as if the second quarter results were a brutal. Results showed the company remained firmly on the growth train, with ARR (annual recurring revenue) growth of 17% year-over-year. But, it wasn’t enough to win back investor interest, which has been fading for quite some time.
The company’s revenue growth has been heading lower for several years. Plus, there’s the massive competitive risk from names like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG, NASDAQ:GOOGL), and Microsoft.
All these companies offer data storage as part of larger service bundles. This could put the company at a long-term disadvantage. But, viewing this as a data storage play alone is a short-sided view.
Why? This company offers centralization for an increasingly decentralized workplace. Offering a one-stop portal for not just shared documents, but collaboration apps as well, the Dropbox platform is an invaluable tool to optimize workflow.
It’s not the only provider out there offering this solution. But, as pandemic tailwind help fuel the shift to remote work, there’s more than enough for Dropbox to not only survive, but thrive.
The Tide of Remote Work Will Raise All Boats
As InvestorPlace’s Chris Lau put it in his Oct. 16 article on Dropbox stock, the work-from-home trend is only getting started. Sure, the pandemic’s acceleration of remote work may subside if and when we return to the “old normal.” However, this macro event could have provided the push needed to pivot corporate America towards embracing a decentralized office environment.
In short, remote work isn’t retreating post-pandemic. Granted, this megatrend could further entrench the largest players in the tech sector, further putting this smaller company behind the eight ball.
Yet, looking at it another way, the rising tide of remote work will raise all boats. That includes Dropbox, which thanks to the fast adoption of remote work, could live up to its growth expectations in the coming years.
As growth remains on track, investors will cool on their bearish concerns. What could that mean for Dropbox stock in the coming years? As our own Mark Hake discussed Oct. 15, shares could post 32% annualized returns through 2024, as free cash flow soars.
Yes, there’s no guarantee this stock will come even close to performing so well going forward. But given its peers have largely priced in future growth, this is the rare tech stock where the ship’s yet to sail.
Give DBX a Shot, and Buy the Continued Pullback
Wall Street may not be giving this stay-at-home-economy stock the enthusiasm it deserves. But, as the company continues to post solid results, expect investor sentiment to warm up.
At first glance it seems that major tech names will eat this company’s lunch. But, taking a closer look, there’s enough room in the market for this “also ran” to thrive. More than just a data storage provider, this company’s service offers a centralized platform in an increasingly decentralized workplace.
The company next announces earnings on Nov. 5, so it may be wise to wait a few days before entering a position. It’s hard to tell whether shares will pop, or drop, once results hit the street.
Yet, while it’s wise to let markets absorb the earnings release, don’t wait too long. With shares near prior lows, now’s the time to seize the opportunity, and dive into Dropbox stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.
