Zoom Could Bottom Out This Week

Zoom Interactive Communications Inc. (ZM) reports Q3 2021 results after Monday’s closing bell, with analysts forecasting a profit of $1.10 per-share on $1.02 billion in revenue. If met, earnings-per-share (EPS) will mark an 11% improvement compared to the same quarter in 2020 when infections ticked higher ahead of the winter wave. The stock crashed 16.7% in August after beating Q3 expectations and has dropped another 13% into mid-November.

Shedding Points at a Rapid Pace

The remote meeting provider has been shedding points since topping out in October 2020 but still posted a phenomenal 495% return last year, suggesting the steep decline marks a natural proportional retracement, following the old market wisdom that ‘big winners in one year become the next year’s big losers’.  It’s now relinquished more than 60% of the gains posted since 2019, suggesting reward-to-risk for new entries is moving rapidly in the buyer’s favor.

JP Morgan analyst Sterling Auty offered an upbeat view on Zoom’s outlook recently, noting “We believe growth will bottom in the fourth quarter but think the market has priced that into the current stock price such that the risk/reward looks more attractive. The entire UCaaS space has been rerated lower on these concerns and worries about Microsoft’s ability to capture share through Teams. We expect Zoom to be the other big winner in the enterprise UCaaS (video, phone, etc.) market and RingCentral in the mid-market”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 13 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $145 to a Street-high $571 while the stock is set to open Monday’s session nearly $100 below the median $350 target. This humble placement should offer a perfect opportunity for solid quarterly results to force short covering and a rapid advance to the $300 level.

Zoom hit an all-time low at 60.97 in October 2019 and exploded higher when the pandemic struck in the first quarter of 2020. It gained 965% off the low, topping out at 588.84 in October, just two weeks before Pfizer Inc. (PFE) introduced the first COVID vaccine. Price action has carved a series of lower highs and lower lows since that time, settling below the .618 Fibonacci retracement of the historic uptrend. Long-term relative strength has now crashed to the most oversold reading since the stock came public in 2019, suggesting it’s nearing a long-term bottom.

For a look at today’s economic events, check out our earnings calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.