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It sports a price-to-earnings ratio of 538 and a price-to-cash-flow ratio of 92.

That is a lot of cash flow, to be sure – but relative to Zoom’s $138 billion market valuation, it really isn’t.Īll of Zoom’s valuation metrics look incredibly expensive. On an annual basis, that equates to almost $1.5 billion. Last quarter, Zoom generated cash flow of $373 million. To judge whether $138 billion is expensive, compare the cash flow and earnings that the business generates. A Deadly CombinationĪs Zoom’s stock price has soared, so too has its stock market valuation.Īt Zoom’s current share price, the stock market values the company at $138 billion. 2: There is nothing stopping much more powerful competitors from offering a superior or equal product and eating Zoom’s lunch. 1: Zoom’s current valuation is crazy expensive relative to the cash flow that the business generates. So why do I think investors should sell any shares of Zoom that they own today? What I’m telling you is that Zoom offers a great service and has a profitable, free-cash-flow-generating business that is growing rapidly. In the second quarter, Zoom had free cash flow of $373 million. This is a high-profit-margin business that sees revenue growth actually turn into positive cash flow. Those terrific results have justifiably driven Zoom’s stock price higher.Įven better, Zoom is not some profitless growth story. In the first quarter, it posted $328 million (up 169% year over year), and in the second quarter, it earned $663 million (up 355% year over year). The result? Zoom’s 2020 revenue growth has been incredible. Zoom has been the videoconferencing service of choice. In 2020, businesses across the globe have scrambled to conduct meetings from home.

With the pandemic forcing everyone to work from home, Zoom was in exactly the right place at exactly the right time. Zoom produces what is widely believed to be the best videoconferencing software on the market. I most definitely wish I had owned shares of Zoom on January 1 and held through today…īut if I did, I can tell you the first thing I would do… If you owned $10,000 worth of Zoom shares on January 1, those shares are now worth more than $70,000.

That is what we call a “seven-bagger” in this business. Zoom Video Communications (Nasdaq: ZM) has been nothing short of a stock market sensation in 2020.