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Why Dropbox Shot Nearly 10% Higher on Monday

By Eric Volkman – Jul 20, 2020 at 5:35PM

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One prominent investment bank thinks the stock is being left behind in the investor rush into companies benefiting from stay-in-place mandates.

What happened

Dropbox (DBX) sure didn't have a bad case of the Mondays. Shares of the cloud-storage company closed the day 9.9% higher after Jefferies dramatically upped its recommendation and price target on the stock on Monday morning.

So what

Jefferies analyst Brent Thill now believes Dropbox is a buy and worth $28 per share. Previously, he had a hold on the stock with a $22 price target.

Thill now feels that in the investor rush to invest in stocks for the seemingly endless stay-at-home period we're all enduring, Dropbox has been ignored. The company is well poised to take advantage of the situation, since remote work in all manner of industries augurs higher demand for its core activity -- remote-data storage solutions. Among consumers, it is fairly well known for these services.

A woman working on a laptop and desktop simultaneously, and pointing to a chart.

Image source: Getty Images.

In his note announcing the update, Thill wrote that the company is executing well, as it "has shown it can deliver on margin goals." He also pointed out that the company's stock trades at an anticipated 2020 price/sales ratio less than half that of comparable companies.

Now what

For a comparatively young tech stock, Dropbox's forward and trailing valuations are relatively low compared to other, more high-profile names in the industry. According to Yahoo! Finance, in addition to that attractive estimated price-sales ratio, its forward price-earnings (P/E) ratio currently stands at under 29. These valuations, plus the boost from Jefferies' upgrade, might continue to provide at least some lift for the stock this week.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc. The Motley Fool has a disclosure policy.

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