The stock market has been through a volatile few weeks. Since the end of July, the Nasdaq Composite index, which is chock-full of growth stocks, fell more than 7% at its low point, then swiftly regained much of the losses.
Whenever growth stocks start bouncing around, as they have been doing, it's important to remember that the next bull market is always around the corner. Moreover, bull market expansions tend to last a lot longer than bearish downturns.
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Over the past 40 years, there have been just five bull markets, lasting an average of seven years. And during those five bull markets, the benchmark S&P 500 index rose 285% on average.
Savvy investors are using the market's latest wobble as an opportunity to scoop up quality stocks before the next bull market carries them much higher. Zoom Video Communications (ZM 1.57%) is one particular stock that Wall Street analysts expect to outperform. If one prominent analyst is correct, it could soar 1,991% by 2026.
Cathie Wood has big expectations for Zoom Video Communications
Ark Invest, the firm Cathie Wood manages, thinks the pool of global knowledge workers that could benefit from Zoom's services is still growing fast. From 2021 through 2026, Ark expects the number of knowledge workers employed under a home/office hybrid or remote model to rise 71% and reach 835 million at the midpoint of its expected range.
Wood's firm also assumes roughly 20% of global hybrid and remote workers will become paying Zoom users. If these and other assumptions by Ark work out as expected, the stock price should reach $1,500 in 2026.
One of Wood's assumptions involves average revenue per user more than tripling from 2021 through 2026. Her firm might not mind spending several hundred dollars annually per employee for premium Zoom subscriptions, but I'm going to assume most businesses will begin looking for alternative solutions if Zoom tries to raise subscription prices that quickly.
I don't think Zoom has nearly as much pricing power as Wood does, but it is incredibly resilient in the face of enormous competitors.
David versus Goliaths
Over two and a half years ago, Microsoft (MSFT 1.82%), a tech behemoth with a $2.4 trillion market value, cranked up its competition with Zoom Video, a company less than one hundredth its size, by offering free 24-hour meetings. These days, Microsoft Teams still lets free users hold 60-minute meetings, which is 50% longer than you'll get with a free Zoom subscription.
Microsoft isn't the only big tech company competing with Zoom to provide businesses with a unified communications platform. In 2021, Salesforce, the world's top provider of customer relationship management software, spent $27.7 billion acquiring Slack, a messaging service with heaps of collaboration-enabling features, including video.
Despite lots of competition from giants like Salesforce and Microsoft, Zoom's business continues growing. Revenue during its fiscal second quarter, ended July 31, rose 4.5% at constant currency rates.
Individuals and small businesses might be taking advantage of free meetings with Microsoft Teams, but bigger businesses keep gravitating toward Zoom. Second-quarter enterprise revenue rose 10.2% year over year to $659.5 million, or 61% of total sales.
Perhaps the biggest sign that Zoom has staying power is its place in the English language. If you're using Teams or Slack to hold a meeting with your co-workers, there's still a good chance you used the word "zoom" as a verb to describe the activity.
A buy now
Wood's expectations seem a bit lofty, but Zoom is probably still a good stock to buy right now. At recent prices, you can scoop up shares for the very reasonable price of just 15.3 times forward-looking earnings expectations.
The forward price-to-earnings multiple is appropriate for an established business growing by a mid-single-digit percentage from year to year. In other words, if its business keeps humming along at its present rate, patient investors could come out miles ahead.
Given Zoom's proven resilience in the face of competition from much larger companies, continued growth at its present pace or faster seems like a reasonable expectation.
