Beware of These 3 Overvalued Work-From-Home Stocks

Yesterday, the U.S. Centers for Disease Control and Prevention (CDC) announced that fully vaccinated people and unvaccinated individuals with a low risk of infection can resume normal working and travelling. The government is also gearing up to reopen the economy and has now ensured that the country has sufficient vaccines for all on hand or en route…

As  fears about the spread of COVID-19 have begun to abate, investors have started to look beyond  ‘work-from-home’ stocks. These are the companies that facilitated remote working and learning and have witnessed unprecedented growth in 2020. Zoom Video Communications, Inc. (ZM – Get Rating), (WIX – Get Rating), and Fastly, Inc. (FSLY) are three such companies. They became household names during the pandemic. With their differentiated offerings, these companies helped individuals and companies to stay afloat.

However, their prospects after the re-opening of the economy look uncertain. Also, the euphoria surrounding these stocks has led to their inflated valuations. So, at this juncture, we think investors looking to bet on these stocks should be cautious.

Zoom Video Communications, Inc. – (ZM – Get Rating)

ZM is a video communications platform that offers its services globally through a couple of major platforms. Zoom Meetings offers HD video, voice, chat, and content sharing through desktops, laptops, conference room systems, mobile devices, and telephones. Zoom Phone is  an enterprise cloud phone system that provides secure call routing, queuing, recording, and monitoring. The company also offers Zoom Rooms and Zoom Chats.

ZM’s revenue for the fourth quarter, ended December 31, 2020 has soared 369% year-over-year to $882.5 million. Its EPS for the quarter climbed to $1.22 from $0.15 posted in the same period last year. The stock has been performing strongly amid the pandemic. However, it has key challenges ahead, which include customer retention in the post-pandemic period and  converting monthly customers into annual contracts.

Analysts expect ZM’s revenue for the full year ended December 31, 2022 to be $3.8 billion, representing  a 44.5% increase year-over-year. Its EPS is likely to grow at the rate of 17% per annum over the next five years.

ZM ended yesterday’s trading session at $342.11, surging 195.2% over the past year. During the past six months, ZM declined 3.8%. ZM also has a stretched valuation now. Its p/e of 149.9x is much higher than the industry average  34.18x.

ZM’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

It has a D grade  for Value and Stability. It is ranked #36 of 79 stocks in the C-rated Technology – Services industry.

Click here to see the additional POWR Ratings for ZM (Momentum, Growth, and Sentiment, Quality).  (WIX – Get Rating)

WIX is a  developer and marketer of a cloud-based platform that allows  anyone to design a website or web application with its  built-in templates. Its Wix Editor, a drag-and-drop visual development and website editing environment tool, and Wix ADI allows  users to design a website according to their specifications. These are its  two flagship products.

During the fourth quarter, ended December 31, 2020, WIX’s revenue…

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