PreMarket Prep Stock Of The Day: Zoom Video's Long Slide

Bottom fishing is a tempting but dangerous sport that can be rewarding if good risk management is used. It is more difficult when trying to pick a bottom in an issue that has been prolonged downtrend since July 2020.

That issue is Zoom Video Communications Inc ZM, which is the Premarket Prep Stock of the Day.

Zoom's Fall From Grace: In the months following the breakout of the pandemic, Zoom was unstoppable on the upside. In fact, it did not peak until Oct. 19, 2020 at $588.84 and backed off to the end the month at $460.91.

Interestingly, it held up fairly well in November, rallying to $478.36. When vaccines became available in December 2020, investors headed to the exit. On a dollar and percentage basis, December inflicted the most monthly damage of Zoom's freefall.

For the month, the issue swooned $141.04 or 29.4% from $478.36 to $337.32.

Zoom's Next Leg Down: The issue was comfortable above that level as it ended June 2021 at $378.10.

It was lower in the next six of seven months, with the one outlier being a small gain in October ($261.50 to $274.65).

It continued lower to end 2021 at $154.28, and so far the low of the move was made on Feb. 24 at $114.26.

Zoom's Q4 Beat, Lower Guidance: After the close on Monday, the company reported quarterly earnings of $1.29 per share, which beat the analyst consensus estimate of $1.05 by 22.86%. The company reported quarterly sales of $1.07 billion, which beat the analyst consensus estimate of $1.05 billion.

Zoom forecast lower first-quarter adjusted EPS (86-88 cents vs. a $1.05 estimate) and lower sales ($1.07-$1.075 billion vs. a $1.1-billion estimate). 

The company guided to FY23 adjusted EPS of $3.45-$3.51 vs. a $4.40 estimate and lower sales of $4.53-$4.55 billion vs. a $4.71-billion estimate.

Breaking All The Rules: When the issue was being covered on the show Tuesday, it was trading at the $130 area.

Both co-hosts of the show tried to be optimistic about the issue, despite the horrendous guidance.

Co-host Dennis Dick posed the question: “Perhaps it's come down so much in valuation, that it is not so ridiculous at these levels?”

He added: “We have seen some of the buy the dip in the growth technology sector as late. Will it happen again today?”

The author of this article identified potential support at $125 as a level for investors who were attempting to buy the dip.

ZM Price Action: After a lower open, Zoom had a baffling rip to $136 and reversed course. The ensuing decline found support just under Monday’s low ($125.10) at $124 and rebounded. 

The stock was down 4.91% at $126.34 late in Tuesday's session. 

The discussion on the issue from Tuesday’s show can be found here:

Photo courtesy of Zoom.