Easing pandemic restrictions and the consequent resumption of economic activities are causing some employees to return to their offices after prolonged remote working.
However, the ongoing digitalization of various industries has made business operations efficient and workers more productive over the past year. So, while enterprises may not be willing to totally return to pre-pandemic work arrangements, thereby sacrificing the benefits of remote working, many are resuming work from office for at least some percentage of their workforce as part of their long-term plans to operate through hybrid working models.
Therefore, popular work-from-home stocks Zoom Video Communications, Inc. (ZM), DocuSign, Inc. (DOCU), and Slack Technologies, Inc. (WORK) could retreat in the near-term because of reduced demand for their solutions. So, we think these stocks are best avoided now.
Zoom Video Communications, Inc. (ZM)
ZM provides a video-first communications platform and web conferencing services worldwide. The San Diego company offers meetings, chat, rooms and workspaces, phone systems, video webinars, marketplace, and developer platform products. It serves the education, finance, government, and healthcare industries.
Several lawsuits have been filed against ZM recently, alleging that the company made materially false and misleading statements regarding its business, operational and compliance policies. According to the plaintiffs, ZM had inadequate data privacy and security measures contrary to its assertions, and its video communications service was not end-to-end encrypted, thus placing its users at an increased risk of having their personal information accessed by unauthorized parties. These lawsuits are likely to impact ZM’s sales negatively in the coming months.
For its fiscal first quarter, ended March 31, 2021, ZM’s cost of revenue increased 155.5% year-over-year to $264.99 million. The company’s total operating expenses came in at $464.93 million for the quarter, up 131.2% from the prior-year period. As of April 30, 2021, the company had cash, cash equivalents, and restricted cash of $1.60 billion.
In terms of non-GAAP forward P/E, ZM is currently trading at 83.70x, 198.7% higher than the 26.65x industry average . And in terms of its forward EV/EBITDA, the stock is currently trading at 66.85x, which is 288.9% higher than the 17.19x industry average. ZM has lost 25% over the past nine months and closed Friday’s trading session at $372.47.
ZM’s POWR Ratings are consistent with this bleak outlook. The stock has a D grade for Value and Stability. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
We have also graded ZM for Sentiment, Momentum, Quality, and Growth. Click here to access all ZM ratings.
ZM is ranked #43 of 72 stocks in the D-rated Technology – Services industry.
DocuSign, Inc. (DOCU)
San Francisco’s DOCU provides cloud-based software solutions worldwide. The company provides an e-signature solution that enables businesses to digitally prepare, sign, act on, and manage agreements. It offers its services to the mortgage, non-profit, government, real estate, insurance, technology, and healthcare industries and sells its products through direct, partner-assisted, and Web-based sales.
As part of its drive to continue connecting and automating the agreement process, DOCU introduced DocuSign Notary, its remote online notarization (RON) solution, on March 24, 2021. DocuSign Notary enables organizations to notarize agreements virtually via a secure audio-visual session, thereby adding speed, convenience, and cost-efficiency to this essential business function. The company witnessed an uptick in demand from enterprises for its flagship eSignature solution after this announcement.
DOCU’s total cost of revenues for its fiscal year 2022 first quarter (ended April 30, 2021) increased 42.2% year-over-year to $105.24 million. The company’s $374.57 million in l operating expenses represents a 41.4% rise from the prior-year period. The company had $519.25 million in cash, cash equivalents and restricted cash as of April 30, 2021.
DOCU’s valuation ratios are much higher than their respective industry averages. In terms of its non-GAAP forward P/E, DOCU’s 166.08x is 523.2% higher than the 26.65x industry average. In terms of forward EV/EBITDA, the stock is currently trading significantly higher than the industry average (131.83x versus 17.19x). The stock closed Friday’s session at $279.20.
According to POWR Ratings, DOCU has a D grade for Value and Stability. Click here to see the additional POWR Ratings for DOCU (Growth, Momentum, Sentiment, and Quality).
DOCU is ranked #55 of 127 stocks in the D-rated Software – Application industry.
Slack Technologies, Inc. (WORK)
WORK engages in the development and provision of channels-based messaging platforms. The San Francisco company operates Slack, a business technology software platform that brings together people, applications, and data, and sells its offerings under a software-as-a-service model. Its product is used to review job candidates, coordinate election coverage, diagnose network problems, negotiate budgets, plan marketing campaigns, and organize disaster response teams.
Several law firms have filed class action lawsuits against WORK based on alleged breaches of fiduciary duty and other regulatory violations in connection with the company’s acquisition by salesforce.com, Inc. (CRM) last year. Under the terms of the agreement, WORK shareholders will receive $26.79 and 0.0776 shares of CRM’s common stock for each share of WORK that they own. The investigation focuses on whether WORK has failed to conduct a fair process and whether and by how much this proposed transaction undervalues the company.
However, WORK’s cost of revenue for the fiscal first quarter, ended April 30, 2021, came in at $39.24 million, which represents a 53.3% rise from the prior-year period. The company’s total operating expenses increased 14.7% year-over-year to $289.40 million. As of April 30, 2021, the company had $1.37 billion in cash, cash equivalents and restricted cash.
WORK’s valuation ratios are much higher than their respective industry averages. In terms of non-GAAP forward P/E, WORK’s 411.16x is 1442.8% higher than the 26.65x industry average. Its 994.75x forward EV/EBITDA is 5686.7% higher than the 17.19x industry average. WORK closed Friday’s trading session at $44.20.
WORK’s poor prospects are also apparent in its POWR Ratings. The stock has a D grade for Value. In addition to the POWR Ratings grades we’ve just highlighted, one can see WORK’s ratings for Growth, Stability, Sentiment, Momentum, and Quality here.
WORK is ranked #30 of 59 stocks in the D-rated Software – Business industry.
Want More Great Investing Ideas?
ZM shares were trading at $388.90 per share on Monday afternoon, up $16.43 (+4.41%). Year-to-date, ZM has gained 15.29%, versus a 15.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|ZM||Get Rating||Get Rating||Get Rating|
|DOCU||Get Rating||Get Rating||Get Rating|
|WORK||Get Rating||Get Rating||Get Rating|