What happened
Shares of Zoom Video Communications (ZM +0.96%) surged higher on Thursday, adding as much as 5.9%. As of 2:56 p.m. ET, the stock was still up 5.8%.
The catalyst that sent the online meeting specialist climbing was positive coverage from a Wall Street analyst.
So what
Citic Securities analyst Junyun Chen initiated coverage of Zoom Video Communications with a buy rating while also issuing a price target of $260. His new estimate would represent potential gains for investors of roughly 43% over the coming year compared with the stock's closing price on Wednesday.
Image source: Getty Images.
The bullish call came as Zoom Video's stock had lost more than two-thirds of its value since it peaked last October. Some investors have become convinced that Zoom was a "pandemic play" and would suffer declining growth as restrictions eased and employees made their way back to the office.
Chen alluded to the pessimism in a research note, writing that current market fears "are clearly excessive" and the stock is "oversold." He cited Zoom's "solid leading position" despite competition from established players, including Microsoft (MSFT 0.34%) Teams and Cisco Systems' (CSCO 0.63%) Webex.
He went on to say that the global video conferencing market still represents a significant opportunity and "maintains a high degree of prosperity."
Now what
There's little denying that Zoom was a major beneficiary of the remote-work and stay-at-home trends wrought by the onset of COVID-19. The company achieved several years' worth of growth during the worst of the pandemic as businesses and individuals alike adopted teleconferencing en masse.
During the fiscal 2022 third quarter (ended Oct. 31, 2021), Zoom reported revenue growth of 35% year over year. While that performance was respectable, it paled in comparison to the 367% growth Zoom generated in the prior-year quarter.
The increasing adoption of COVID-19 vaccination boosters, the development of oral coronavirus treatment, and the hope for an eventual end to the pandemic have led some investors to dismiss Zoom Video Communications outright and take a hard pass on the stock.
Yet, in spite of tough comps and established competition, Zoom continues to grow its revenue. For investors with an appropriate long-term time horizon, this likely represents a compelling opportunity.
