PreMarket Prep Stock Of The Day: Zoom Video

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Some stocks get hot and some catch on fire. Zoom Video Communications Inc ZM, the PreMarket Prep Stock of the Day, is a blazing inferno ahead of its first-quarter report. 

Zoom As A Coronavirus Play

In every natural disaster or worldwide catastrophe, there are going to be winners and losers in the equities market. For example, the price action in the generator maker Generac Holdings Inc. GNRC tends to be favorable during hurricane season.

With airplane travel severely limited and office buildings around the world idled, business meetings must go on.

While there are a few alternatives for this purpose, Zoom has created an easy and efficient way for people around the world to communicate at the click of a button.

For an in-depth look at the issue, here is a clip from today’s show:

Zoom Pops, Drops Off IPO

As is common with new issues coming to the market, there is an initial euphoria from the initial public offering that takes the stock well beyond its opening price action. Zoom’s opening print on April 18, 2019 was $65. After a brief pop to $66, it retreated to $60.32 and ended its inaugural session at $62.

The following day it put in a place a classic double bottom when it matched the previous day's low, reaching $59.94, and staged a major rally to the end the session at $65.70.

On June 20, it made an all-time high at $107.34 after hitting an all-time closing high the prior day at $102.29.

Zoom weakened and ended 2019 much closer to its opening day price, at $68.04.

Zoom Holds Up During Market Meltdown

Zoom followed the market higher in early 2020 and made a new all-time high on Feb. 20 ($110.75), which is the same day the S&P 500 made its all-time high. On the day the index bottomed — March 23, a volatile session — Zoom added 22%, leaping from $130.55 to $159.56.

With the issue trading at the $150 area, privacy concerns prompted the New York attorney general to look into the company’s privacy and security practices. When the Connecticut attorney general did the same, the selling intensified.

Zoom put in a double bottom just under $110 on April 6 ($108.53) and April 7 ($109.57) and began to rebound. When no legal action was taken, the stock resumed its bullish trend.

Over the last four sessions, including Tuesday’s price action, Zoom was on every buyer’s radar ahead of its first-quarter report after the close.

From Thursday’s closing price ($163.55), it reached $212.69 off Tuesday's open, but some profit-taking nudged the issue back to the $200 area.

At the time of publication, Zoom shares were up 1.64% at $207.50. 

Zoom Moving Forward

Zoom has created a great product, but one with low barriers to entry. With a P/E ratio of 2,500 and market capitalization of roughly $60 billion for a company with less than $600 million in revenue for 2019, it can hardly be considered a bargain.

Yet in this momentum- and algorithmic-driven market, there is no way to determine where the rally will pause or come to an end.

Keep in mind that with the monster rally ahead of Zoom's report, a big beat will be needed to keep the momentum going.

With the significant retreat from Tuesday's high that occurred, that level may attract some sellers on a rally. The issue may have limited support until Monday's low of $183 in the event of a retreat below the current daily low ($197.32), based on the daily charts. 

Photo courtesy of Zoom Video.