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Here's Why Zoom Video Communications Stock Rose 12% in January

By Jon Quast – Feb 4, 2020 at 10:41AM

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And it's a perfect example of why you need to ground your emotions in a concrete investing thesis.

What happened

Shares of Zoom Video Communications (ZM -1.18%) happily climbed 12.1% in January, according to data provided by S&P Global Market Intelligence. The rally was sparked after Joshua Brown, CNBC analyst and CEO of Ritholtz Wealth Management, reportedly disclosed that he had bought shares.

Since then, bullish investor sentiment has taken hold, sending shares euphorically higher in February as well. Some see Zoom as a good play as coronavirus fears deepen, since it enables communication but avoids the germ-sharing consequences of face-to-face conversation. 

One dollar bill folded into an arrow pointing up.

Image source: Getty Images.

So what

Initial investor sentiment for Zoom was very bullish. It had its initial public offering (IPO) in April 2019, at $36 per share, before running over $100 in just a couple of months. Analyst downgrades then sent the stock lower, despite Zoom beating and raising guidance throughout 2019.

Brown may have shifted bullish sentiment back in Zoom's favor, since he's an influential investor. Besides being on CNBC's Halftime Report, he's also followed by over a million people on Twitter

Now what

While Zoom investors are enjoying the ride up, it's important to note that analyst and investor sentiment is fickle. It's helpful to read analysts' reports to understand their perspective. But the best approach is to invest for the long term based on the business fundamentals.

And Zoom's business looks good. Consider that in each of the last two quarters, the company has beaten both its revenue guidance and earnings-per-share guidance. That led the company to raise its full-year guidance to a range of $609 million to $610 million in revenue, and $0.27 in non-GAAP (adjusted) earnings per share. Those full-year results are scheduled for March 4. If it meets or beats guidance again, that would be a much better reason to invest than just chasing oscillating analyst opinions.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter and Zoom Video Communications. The Motley Fool has a disclosure policy.

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Zoom Video Communications Stock Quote
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