What happened
Shares of Zoom Video Communications (ZM -0.99%) were sliding again last month as investors continued to bail on growth stocks and pandemic winners. Zoom's decline came even as the omicron variant flared across the country, dealing another setback to companies hoping to return to the office.
There was little company-specific news out on Zoom last month. Rather, the decline is more a reflection of market sentiment continuing to move away from Zoom after the stock skyrocketed in 2020.
Image source: Zoom.
According to data from S&P Global Market Intelligence, the stock finished the month down 16%. As you can see from the chart below, the stock fell over most of the month before making a comeback in late January.
So what
Growth stocks were hit hard in January on fears of rising interest rates, and Zoom was unable to escape the malaise. Though the stock is arguably on the border of value territory after it's fallen more than 75% since its peak in October 2020, investors still group it with high-priced tech stocks and, as a result, the valuation continues to compress.
Rising interest rates are generally problematic for growth stocks as they cause valuations to come down, and make bonds and cash-generating stocks more attractive. Zoom was one of several pandemic winners to fall sharply last month, including Peloton, Netflix, and Shopify, as well as SaaS and e-commerce stocks more broadly. Investors seem to be betting on the normalization of the economy after the omicron wave fades, and indeed, with a number of state and local governments now lifting mask mandates, that seems to be what's happening.
Zoom did get an endorsement from Cathie Wood in the middle of the month as Wood's Ark ETFs bought nearly 300,000 shares of Zoom, or roughly $50 million worth, though that wasn't enough to help the stock.
Now what
Zoom's growth rate has slowed considerably form the triple-digit pace it posted in the early stages of the pandemic, but the stock hasn't had any particular disappointments like some pandemic winners like Peloton or Zillow have.
For the current quarter, Zoom is targeting revenue growth of just 19%, showing its growth rate has cooled off significantly, but the company is highly profitable and has dominant market share in videoconferencing.
Currently, the stock trades at a price-to-earnings ratio of roughly 30, only slightly more expensive than the S&P 500. At that price, Zoom looks like a good buy.
