Few companies have seen their business take off during the pandemic like Zoom Video (NASDAQ:ZM); over the past year, the work-from-home trend has pushed video conferencing through the roof. At the height of its gains, Zoom stock was up over 750%. Now, though, the company has seen its shares hit badly by the arrival of a novel coronavirus vaccine. At this point, ZM has lost about a third of its value since peaking in October. But Zoom’s current dip offers a buying opportunity.
This stock is rated an “A” in my Portfolio Grader for a reason. Yes, ZM is in a slump and taking it on the chin today. However, I’m looking at the longer term.
Why am I bullish on this company? Everything I see points to Zoom continuing to be a strong position, even with a vaccine in play.
Zoom Stock Is Slowing But Still Beats Expectations
Already suffering from jitters about the prospect of a return to the office, Zoom stock took another big hit after reporting its third quarter earnings in November.
Revenue of $777.2 million was up 367% year-over-year (YOY), beating analyst expectations of $694 million. Adjusted earnings per share (EPS) of 99 cents also trounced Wall Street’s projections of 76 cents. The market reaction? ZM dropped 15% the next day.
The reason for the panic seemed to be Zoom’s guidance for 329% growth in Q4. Any other company would kill for those numbers, but for Zoom that represents a slight slowdown. That decrease further exacerbated fears that — once the world returns to normal — Zoom will become irrelevant.
Why Zoom Won’t Go Away
During the pandemic, international business travel all but shut down. Business flights within the U.S. also tanked. As such, companies turned to video conferencing tools like Zoom to replace in-person meetings. That resulted in huge savings. So, once we return to normal, many companies will be reluctant to resume that spending.
Additionally, an increased awareness of global warming is pushing many companies to reduce their carbon footprint. Cutting business travel and replacing it with video conferencing is an easy win on that front, too.
As for remote workers, many companies are committing to keeping at least some of their employees online going forward. Others will continue to keep video conferencing as an option to hedge against future emergencies — not just another pandemic, but a range of natural disasters.
In other words, when the pandemic is officially over and workers return to the office, employers are unlikely to cancel their Zoom subscriptions.
Zoom has also had a huge impact in the education world. At universities and colleges, remote learning was already becoming part of the curriculum. The pandemic accelerated that adoption of technology. Cornell University economics professor Robert H. Frank wrote in the New York Times:
“The move to remote course offerings had been happening slowly, fueled in part by chronic budgetary shortfalls at many colleges and universities. But because the pandemic has greatly amplified those cost pressures, it will accelerate the transition. And although the average quality of remote instruction has been low, the sheer scale of recent efforts has sped the discovery of ways to improve it.”
Dean Cantu, a teacher education professor at Bradley University, also sees tools like Zoom being adopted on a permanent basis for administrative tasks:
“Basically, a lot of the interaction that would have taken place in the faculty member’s office can take place within Zoom […] And that’s one of those things that I think many faculty members post pandemic are going to continue to use.”
All of these factors mean that Zoom stock is not as down-and-out as some traders think.
Bottom Line
I’m not the only one who feels Zoom stock is set for a recovery and will remain relevant. The investment analysts tracked by the Wall Street Journal have ZM rated as Overweight. Their average 12-month price target of $489.95 offers a very tempting 30% upside.
Given all of the variables favoring Zoom and the momentum it has received courtesy of the pandemic, the current slump in the stock is a gift. The end of the pandemic does not mean companies will cancel their video conferencing services. If anything, the pandemic proved just how valuable the technology is.
So, smart investors would be wise to buy Zoom stock this holiday season.
On the date of publication, Louis Navellier had a long position in ZM. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system —with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
