Zoom (ZM) Stock Could Be Undervalued On Its 74% Five Year Slump
Zoom Communications stock is trying to rebuild investor confidence after falling about 74% over the past five years, and today both the market multiples and a Discounted Cash Flow (DCF) intrinsic value estimate point to the shares trading below what the business may be worth.
- Over the past five years, Zoom Communications has declined about 74%, which sets a low base for any current assessment of whether the stock still prices in too much pessimism or not.
- Expectations around Zoom Communications expanding its AI driven platform, including its stake in Anthropic and the planned acquisition of Common Room, can support higher intrinsic value, while execution risks and competitive pressure in collaboration and customer experience tools may limit how much investors are willing to pay.
- On Simply Wall St's checks, Zoom Communications screens as undervalued in 5 of 6 valuation tests. This means the broader framework leans toward the shares being cheap rather than fully priced.
The issue now is whether that apparent discount, including an estimated 19.0% gap between the share price and the DCF based intrinsic value, offers enough margin of safety for investors at current levels.
Does Zoom Communications Look Undervalued on Cash Flow?
The Discounted Cash Flow (DCF) model here uses projected cash flow to equity to estimate what Zoom Communications might be worth today. The latest twelve month free cash flow sits at about $1.9b, and the projections assume these cash flows keep growing rather than shrinking, which supports a higher implied value for the equity.
On this basis, the DCF model points to an intrinsic value of about $113 per share, which compares to a current market price that implies roughly a 19.0% discount. News around Zoom Communications’ early investment in Anthropic and its planned acquisition of Common Room helps explain why some investors focus on the company’s broader AI platform potential even while the share price still sits below the DCF estimate.
Pulling this together, the DCF work suggests Zoom Communications stock currently appears undervalued relative to its projected cash flows.
Our Discounted Cash Flow (DCF) analysis suggests Zoom Communications is undervalued by 19.0%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.
Is Zoom Communications Still Cheap on Earnings?
The P/E multiple is a useful yardstick for Zoom Communications because earnings are positive and the stock is widely followed. Zoom currently trades on a P/E of about 12.9x, which is well below the broader Software industry average of roughly 28.9x and the peer group average near 61.5x.
Simply Wall St’s model suggests a Fair P/E Ratio of about 19.9x for Zoom Communications, reflecting its business profile, sector, size and risk factors. Compared with the current 12.9x, that fair ratio highlights a sizeable gap between where the stock trades and where it might sit if the market priced it more in line with those fundamentals.
On this P/E yardstick, Zoom Communications stock appears undervalued relative to both its industry and the fair multiple estimate.
See what the numbers say about this price — find out in our valuation breakdown.
The Zoom Communications Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the Zoom Communications valuation puzzle leaves off by spelling out which paths for growth, margins and earnings would need to hold for the stock to be worth materially more or less than today’s price, and they sit on the company’s Community page. Rather than focusing on a single multiple or model output, each Narrative lays out the assumptions behind its fair value so you can compare them with actual results over time.
The community is split on Zoom Communications, with one camp seeing an AI powered platform on sale and the other worried that competition and slowing demand could cap what the stock is worth.
Bull case: 21% undervalued
"Strong enterprise adoption of AI-driven collaboration tools and unified communications is broadening Zoom's market reach, leading to more stable, recurring, and diversified revenue streams..."
Read the full Bull Case to see why Zoom Communications could be undervalued
Bear case: 7% overvalued
"Eroding demand, feature commoditization, and tough competition from larger ecosystems threaten Zoom's revenue growth, margins, and ability to penetrate the enterprise segment..."
Read the full Bear Case to see why Zoom Communications could be overvalued
Do you think there's more to the story for Zoom Communications? Head over to our Community to see what others are saying!
The Bottom Line
For Zoom Communications, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view currently point to an undervalued stock rather than one that looks fully priced. That discount only pays off if the company can turn its AI investments and broader collaboration platform into durable cash flows that justify a higher multiple over time. The key debate from here is whether current concerns around competition and demand prove temporary, or whether they are a sign that the discount is simply the market correctly pricing ongoing execution risk.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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