Zoom (ZM) Stock Looks Undervalued With Cash Flow And Earnings In Focus
Zoom Communications stock has bounced back in the shorter term, yet the valuation work still points to some potential upside, with both the Discounted Cash Flow (DCF) intrinsic value estimate and market multiples indicating the shares screen as undervalued.
- Over the past 5 years, Zoom Communications shareholders have seen the stock fall about 71.9%, which still dominates the long term picture even after the more recent recovery.
- The company’s ability to keep converting its collaboration platform into reliable cash flows can support the current valuation, while any slowdown in user engagement or pricing power may weigh on what investors are willing to pay.
- On Simply Wall St’s checks, Zoom Communications looks undervalued on 4 of 6 measures. This is a mixed picture rather than a clear bargain or clear overvaluation, and you can see the breakdown in the 4 out of 6 value score.
The issue now is whether the recent share price recovery has already reflected most of that implied undervaluation, or if there is still a margin between Zoom Communications’ market price and its intrinsic value estimate.
Does Zoom Communications Look Undervalued on Cash Flow?
The Discounted Cash Flow model projects the cash Zoom Communications can generate for shareholders and compares that to the current share price.
On the latest twelve month numbers, Zoom Communications produced about $1.9b of free cash flow. The DCF model assumes these cash flows continue to grow from this base, then settle into a more moderate pace over time. On that set of assumptions, the estimated intrinsic value comes out at about $116 per share.
Compared with the current share price, this intrinsic value implies the stock trades at roughly a 13.0% discount to the model’s estimate. That gap suggests the market price is not fully reflecting the cash flows the business is expected to generate, although the margin is not extreme.
Overall, the Discounted Cash Flow work indicates Zoom Communications stock appears undervalued relative to its projected cash generation.
Our Discounted Cash Flow (DCF) analysis suggests Zoom Communications is undervalued by 13.0%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.
Does Zoom Communications Look Undervalued on Earnings?
P/E suits Zoom Communications because the stock generates positive earnings that give you a clear price tag on each dollar of profit. On this measure, Zoom Communications trades on a P/E of about 14.2x. That sits well below the broader Software industry average of roughly 32.5x and the peer group average of about 73.4x.
Simply Wall St’s fair P/E for Zoom Communications is around 21.5x, which reflects the company’s earnings profile, industry, size and risk. Compared with the current 14.2x, the stock trades at a sizable discount to that fair multiple. This points to the market placing a lower value on Zoom Communications’ earnings than the model suggests based on these factors.
On the P/E multiple, Zoom Communications stock currently looks undervalued relative to what its earnings profile might justify.
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 valuation work on Zoom Communications' stock leaves off and explain which future paths for growth, margins and earnings would make the current price look too low or too high. Each narrative sets out a fair value as a thesis about Zoom Communications' business that you can revisit over time. This allows you to see how the underlying assumptions hold up as new information comes through on the Community page.
Zoom Communications attracts sharply different views, with some investors focused on AI driven expansion and others more cautious about competition and demand for its core products.
Bull case: 12% undervalued
"Strong and accelerating adoption of AI-powered features such as AI Companion, Virtual Agent 2.0, and Contact Center Elite demonstrates growing customer reliance on advanced collaboration and productivity tools..."
Read the full Bull Case to see why Zoom Communications could be undervalued
Bear case: 18% overvalued
"As hybrid work becomes the permanent norm, business reliance on fully virtual communication wanes, which could erode demand for Zoom's core video conferencing solutions..."
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, although not by an extreme margin. The broader checks are mixed rather than overwhelmingly strong, so the gap looks more like a measured discount than a clear mispricing.
The key question from here is whether Zoom Communications can keep turning its collaboration platform into dependable cash flows and earnings that justify a higher multiple, or whether concerns about user engagement and demand for its core products continue to cap what investors are prepared to pay.
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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