Zoom Could Offer Deep Dip Buying Opportunity

Zoom Video Communications Inc. (ZM) fell to a four-month low at the start of Monday’s U.S. session, continuing a painful slide that’s relinquished more than 35% of the stock’s value since October’s all-time high at 589. The transition out of COVID beneficiaries and into recovery plays accounts for part of the downside but that hasn’t stopped Peloton Interactive Inc. (PTON) and other pandemic winners from posting another round of all-time highs.

Zoom Long-Term Growth

The future still look bright for Zoom, with Bill Gates predicting that half of all business travel will disappear in coming years, in favor of the virtual meeting space. He also expects 30% of American employees to work from home on a near-permanent basis, supporting long-term growth for Zoom’s rapidly growing suite of products. Given the mix of catalysts in play, it looks like over-valuation and overbought readings are responsible for most of the downside.

The company is aggressively pursuing new revenue streams to diversify its primary business model, with recent reports it was exploring entry into e-mail and calendar services. It’s also just expanded into Singapore, opening a new research and development center. However, reports on both activities have triggered sell-the-news reactions, reflecting growing nervousness by shareholders worried the uptrend has come to an end.

Wall Street and Technical Outlook

Wall Street has grown increasingly cautious about Zoom’s long-term outlook, dropping to a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 12 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $340 to a Street-high $600 while the stock is trading just $20 above the low target. This humble placement raises odds the two-month correction has entered its final phase.

The decline is nearing the 200-day moving average for the first time since a February breakout. In addition, that level has narrowly aligned with the bottom of Sept. 1’s unfilled gap between 326 and 440, setting up a high odds reversal zone that could end the correction. Accumulation readings have remained rock-solid throughout the selloff, providing the ample supply of committed buyers needed for a high percentage bounce into the 450 to 500 zone.

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