Categories Technology, Trending Stocks

Zoom Video Communications (ZM) stock looks overvalued amid bullish outlook

Thanks to the travel bans, the video conferencing software is witnessing a spike in usage

Zoom Video Communications’ (NASDAQ: ZM) stock looks overvalued at the current levels. Interestingly, the trend shows that the Covid-19 outbreak is likely to brighten its growth prospects and the shares might retreat once the crisis subsides.

The demand for the company’s video-conferencing software is seeing a spike after millions started working from home due to travel restrictions. The stock appears to be overvalued as the company’s software is the most preferred among the growing isolation-population, who have been hit by the coronavirus.

Image for representation. Courtesy: Glenn Carstens-Peters on Unsplash

Meanwhile, analysts continue to recommend holding the stock as the product usage is not likely to result in an increase in the company’s paid users. The increased usage of Zoom Video applications could put pressure on its infrastructure.

The management believes that building of capacity could negatively impact the gross margins in the coming months. The company continues to be cautious as gross margins are currently expected to be at the low end of its forecast range for next year.

For the fourth quarter, Zoom Video reported a jump in earnings as the demand for video-first unified communications platform drove the top line higher. Revenue jumped 78% driven by the acquisition of new customers and the expansion of existing customers.

However, the company has been experiencing material deceleration in the top-line growth rates due to the short-term weakness. This is likely to continue this year. The company continues to be uniquely positioned as a fast-growth company backed by strong operating margins as well as strong domestic and international growth.

The stock opened lower and is trading in the negative territory on Tuesday. The shares have risen over 73% in the past year and over 61% in the past three months. The stock is above the 50-day moving average of $98.26 and the 200-day moving average of $79.14. The performance outlook shows a negative trend in the near-term, with a positive shift in the mid and long-term.

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