ZM has a volatile history of post-earnings reactions
Zoom Video Communications Inc (NASDAQ:ZM) reports earnings a week from today, after the market closes. To say the stock needs a catalyst to change its recent price action is an understatement. Ahead of the event, options traders are bracing for fireworks.
Zoom Video has a rather volatile history of post-earnings reactions. The stock gapped lower by 16.5% after its August report, and lost 14.7% 12 months ago after its November report in 2021. Overall, ZM averages a post-earnings move of 10.7% regardless of direction, but this time around, the options market is pricing in a 14.5% move for next Tuesday's trading.
Per the chart below, Zoom stock has traded in a tight range since that August gap lower. The equity is 52% lower on the year, but cleared its 80-day moving average last week, a trendline breached on a closing basis only once since August.
Nonetheless, Zoom continues to trade at relatively high valuation metrics like a forward price-earnings ratio of 21.93 and a price-sales ratio of 5.53. Although these figures reflect a much fairer value in comparison previous quarters or recent years, the company’s estimates for the upcoming years don’t seem to justify ZM’s price. The business is estimated to report a 7.1% increase in revenue but a 27% decline in earnings for fiscal 2023.
Zoom is also expected to generate 9.1% revenue growth for fiscal 2024, but estimates suggest it will see a 0.8% decrease in earnings, possibly signaling two years of earnings declines. Fortunately, the company maintains an excellent balance sheet with $5.52 billion in cash and only $97.94 million in total debt, providing it the resources to experiment ways to improve its profit margins. Its balance sheet also makes ZM one of the safer long-term speculative plays despite the stock being unfit for value investors.
Now might be the perfect time for options players to speculate on the stock's next move higher. As we mentioned before, ZM's Schaeffer's Volatility Index (SVI) sits in the very low 22nd annual percentile. Plus, its Schaeffer's Volatility Scorecard (SVS) sits at 79 out of a possible 100. This means that not only are options traders pricing in relatively low volatility expectations at the moment, Zoom stock tends to exceed said expectations -- a good thing for buyers.