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Analyst Read: Zoom

Valuation and fundamentals matter.
(NikkiMeel)
(NikkiMeel)
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On the back of yesterday’s assessment of Square’s ($SQ) valuation, here’s a friendly reminder that valuation and fundamentals matter. I don’t care how strong the business is or how fast it’s growing, there’s always a price above which I am not willing to pay for it.

Just look at Zoom ($ZM), which we’ve been cautioning against for months now (proof). $ZM is now down from $568 to $355 per share from its peak in October, a painful 37% decline. It was trading for over 55x forward Gross Profit back then and is now at about 44x, which is still too high in this frothy environment, in my opinion.

We are in this game to grow our capital over many years. The only way most of us can do that reliably is by:

  1. Finding companies undergoing secular trends
  2. Being correct in our educated predictions about those trends
  3. Buying into those companies at a valuation that presents reward that is asymmetrically attractive compared to its risks and downside

I will be releasing a write up about our newest addition to the Big Board today, so keep an eye out for that if you’re a ROIC member.

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