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Why Zoom Shares Fell Nearly 4% Today

By James Brumley – Aug 11, 2021 at 4:19PM

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It's telling how investors have stopped jumping into budding rebounds from the stock, and instead are now using them to make exits.

What happened

Zoom Video Communications (ZM -0.22%) lost 3.8% on Wednesday, extending a pullback rooted in growing doubts about the company's future growth.

So what

Don't look for a specific news-based reason Zoom stock is more than a little bit in the red today. You won't find it. Rather, read between the lines -- investors are growing increasingly concerned about the stock's valuation. Shares are now down 10% from last Thursday's surge as the budding rebound effort that first materialized in May continues to struggle.

Thursday's high marks the fourth-lowest major high from Zoom since peaking at $588.84 in October. The current price near $358 is not only down nearly 40% from that peak, but within striking distance of a new multi-week low as well.

Falling digital stock chart.

Image source: Getty Images.

Now what

There's no denying Zoom Video Communications saved a slew of companies from disaster when the pandemic effectively forced employees all over the world to begin working from home. And now that enterprise-level organizations have had a chance to evaluate the nature of the need and compare solutions, certainly Zoom is positioned to keep many of its current customers as well as bring new ones into the fold.

Nevertheless, the 750% gain Zoom shares dished out last year from trough to peak coupled with this year's inevitable business-growth slowdown is making it tough for traders to remain bullish. The company's $114 billion market cap laughably dwarfs its trailing-12-month revenue of $3.3 billion and net income of nearly $900 million. Not that companies can't grow into rich valuations, but sometimes the market changes its mind about the sort of valuations it will support in the interim.

That doesn't completely mean Zoom should be off-limits to all newcomers. But it does mean that newcomers should make a point of taking the proverbial temperature of the market's perception of this stock and company, now that new demand for such services is tapering off. The stock's action itself speaks volumes in that regard.

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

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