When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Zoom Video Communications, Inc. (NASDAQ:ZM) as a stock to potentially avoid with its 24.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
Recent times have been pleasing for Zoom Video Communications as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Zoom Video Communications will help you uncover what's on the horizon.
How Is Zoom Video Communications' Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like Zoom Video Communications' to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 496% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 18% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the analysts covering the company suggest earnings growth is heading into negative territory, declining 3.3% per year over the next three years. With the market predicted to deliver 10% growth per annum, that's a disappointing outcome.
In light of this, it's alarming that Zoom Video Communications' P/E sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Zoom Video Communications currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zoom Video Communications (1 is concerning) you should be aware of.
Of course, you might also be able to find a better stock than Zoom Video Communications. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
當將近一半的美國公司的市盈率(或 "P/E's")低於18倍時,您可以考慮將Zoom Video Communications, Inc.(納斯達克股票代碼:ZM)作爲其市盈率爲24.4倍的股票,可能會避免。但是,市盈率之高可能是有原因的,需要進一步調查以確定其是否合理。
最近令Zoom Video Communications感到高興,因爲儘管市場收益出現逆轉,但其收益卻有所增加。看來許多人預計該公司將繼續克服更廣泛的市場逆境,這增加了投資者購買股票的意願。你真的希望如此,否則你會無緣無故地付出相當大的代價。
納斯達克GS: ZM 與行業的市盈率 2024 年 9 月 25 日
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Zoom 視頻通信的增長趨勢如何?
人們固有的假設是,如果像Zoom Video Communications這樣的市盈率才算合理,公司的表現應該優於市場。