Evaluating Zoom After AI Collaboration Tools Launch and Recent Share Price Movement

If you’re eyeing Zoom Communications stock, you’re not alone. Investors everywhere seem to be asking the same question: Is Zoom a buy, a sell, or one to hold? The stock recently closed at $82.79 and has notched up a modest 1.5% gain year-to-date, a number that would surprise anyone still stuck on memories of its dramatic surge during the pandemic. Over the last week, Zoom’s shares climbed a solid 3.7%, but if you look back five years, the picture is quite different, showing an 83.1% decline. That kind of volatility makes it all the more important to dig into what’s driving the price now.

It’s not just market noise moving Zoom’s share price. Just this month, Zoom made headlines by rolling out a new suite of AI-powered collaboration tools, aiming to stay one step ahead in a hyper-competitive communications sector. Investors seem cautiously optimistic, sending the stock higher in the short term as they size up the impact of these innovations. Yet, there’s still some uncertainty about how much these new features will transform Zoom’s long-term growth prospects, especially as competition heats up in both enterprise and consumer markets.

When you look at the numbers, Zoom stands out with a value score of 5 out of 6, meaning it’s undervalued by almost every important metric analysts care about. With so much action both in the company’s fundamentals and in the news, it’s the perfect moment to break down Zoom’s valuation, method by method. But keep reading because at the end of this article, I’ll share a smarter, more holistic way to tell if now’s the right time to make your move.

Why Zoom Communications is lagging behind its peers

Approach 1: Zoom Communications Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) approach estimates a company's fair value by projecting its future cash flows, then discounting those cash flows back to their present value. This method helps investors determine what a business is really worth, based on its ability to generate cash over time.

For Zoom Communications, the company's latest twelve-month Free Cash Flow stands at $1.79 Billion, with analysts projecting moderate growth over the coming years. Actual analyst estimates extend five years out, with Zoom's Free Cash Flow still above $2.1 Billion by 2030 (with later years extrapolated). This forward-looking model uses a "2 Stage Free Cash Flow to Equity" methodology. This approach is especially useful when a business is moving beyond its high-growth phase toward a more stable, mature period.

According to this DCF analysis, Zoom's intrinsic value is $117.20 per share, compared to its recent trading price of $82.79. That means the stock appears 29.4% undervalued based on long-term cash flow assumptions.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Zoom Communications.

Our Discounted Cash Flow (DCF) analysis suggests Zoom Communications is undervalued by 29.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Zoom Communications Price vs Earnings

When evaluating profitable companies like Zoom Communications, the price-to-earnings (PE) ratio is one of the most widely used metrics. It helps indicate how much investors are willing to pay today for a dollar of current earnings. For stable, earnings-generating businesses, this multiple provides a direct line of sight into the balance between profitability, market sentiment, and potential future growth.

What counts as a "reasonable" or "fair" PE ratio can shift dramatically depending on factors like earnings growth expectations and perceived risk. Companies projected to grow earnings quickly or with lower risk tend to command higher PE ratios. Those facing more uncertainty or slower growth usually trade at lower multiples.

Looking at the numbers, Zoom currently trades at a PE ratio of 20.86x. For context, the software industry average is 33.55x and the average among Zoom’s peers is even higher at 70.90x. At first glance, this suggests Zoom might be undervalued relative to both its industry and direct competitors.

This is where Simply Wall St’s Fair Ratio stands out. Rather than simply comparing to industry or peer multiples, the Fair Ratio blends in deeper insights such as the company’s projected earnings growth, margins, scale, market cap, and specific risks. For Zoom, the Fair Ratio comes in at 27.88x, reflecting what would be appropriate given its fundamentals and outlook.

Comparing Zoom’s actual PE ratio of 20.86x to the Fair Ratio of 27.88x highlights a significant discount. This suggests the market is undervaluing Zoom based on its financial profile, growth, and risk-adjusted outlook.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Zoom Communications Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. Simply put, a Narrative is your personal story about where you think a company is heading, connecting your views on its business prospects to your own forecasted numbers for future revenue, earnings, and margins, and ultimately, your idea of fair value.

Narratives put the company’s story front and center and tie it directly to financial outcomes, so your decisions have a clear, logical foundation. This isn’t just another tool for analysts. On Simply Wall St’s Community page, millions of investors use Narratives every day to clarify their investor thesis and see how their expectations stack up against the market.

With Narratives, you can see exactly how your fair value estimate compares to the actual price, helping you spot when a stock is undervalued or overpriced, and giving you the confidence to make buy or sell decisions. Best of all, Narratives refresh dynamically when new results or breaking news emerges, so your thesis is always up to date.

For example, on Zoom Communications, the most optimistic investors currently see fair value as high as $115 per share, while the most cautious peg it as low as $67, reflecting very different views on the company’s growth and risk, but all visible through their individual Narratives.

Do you think there's more to the story for Zoom Communications? Create your own Narrative to let the Community know!

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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