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 (NASDAQ: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.
