Investors can still find room for Zoom

Zoom Video Communications’ (Nasdaq: ZM) stock soared as the pandemic took hold, with millions of people using its software for video calls.

Its shares were recently down more than 75% from their all-time high, though, due to a slowing growth rate and the worry that Zoom will fade once the pandemic winds down.

But this may be a great time to snap up shares at a relatively low price – because there’s still a lot to like about Zoom.

For starters, Zoom was already growing rapidly before the pandemic hit.

It’s profitable, with positive free cash flow and a fortress of a balance sheet. The end of the pandemic will deliver more workers back to workplaces, but it’s likely that significant remote work will remain.

A September 2021 Gallup poll found that most of those polled who were working from home at least part time wanted to keep doing so.

Not all will get to, of course, but many companies will offer remote options to retain workers.

Meanwhile, besides its flagship Zoom Meetings technology, Zoom has Zoom Phone and Zoom Rooms – which arguably have greater long-term growth potential.

They should do well even as workers return to the office, because Zoom Phone updates a company’s internal phone infrastructure while Zoom Rooms modernizes conference rooms.

Risk-tolerant long-term investors should take a closer look at Zoom. (The Motley Fool owns shares of and has recommended Zoom Video Communications.)

Ask the Fool

Q: I’m new to investing. How can I tell when a stock is overvalued or undervalued? – D.L., Venice, Florida

A: A company’s intrinsic value is to some degree a subjective number.

Smart, experienced analysts who study the same company and perform calculations with fancy spreadsheets are likely to come up with results that are somewhat or even very different because they’ll be based on different assumptions and estimates.

Even great investors will often disagree on the fair value of a stock.

Still, there are ways to get at least a rough idea of how attractive a stock’s price is.

You might, for example, compare its current price-to-earnings (P/E) ratio with its historical P/E range over the past five to 10 years.

PepsiCo, for example, was recently trading with a P/E near 30.

A glance at its past ratios (available at Morningstar.com, among other sites) shows that its average P/E over the past five years is roughly 25.

That suggests that PepsiCo’s stock may be overvalued right now. Of course, there’s much more to the picture.

Potential investors should assess PepsiCo’s strengths, weaknesses and competitive advantages, along with its cash, debt, profit margins and growth rates, among other things.

There are other valuation measures to check out, too, such as price-to-sales ratios.

Q: What’s the short-term tax rate for stocks? – F.W., Detroit

A: The short-term capital gains tax rate is the same as your ordinary income tax rate, and it applies to stocks held for a year or less.

However, the long-term capital gains tax rate, for qualifying assets held at least a year and a day, is only 15% right now for many people. There’s talk of changing tax rates these days, too.

My Dumbest Investment

My dumbest investment? It was “investing” $5,000 in a “market training” course.

The online lessons were garbage, and the company essentially stole my money. – M.H., online

The Fool responds: Just as regular colleges vary in their value propositions depending on their faculties, class sizes, costs and outcomes (among other things), online investing courses also vary.

Because so many people are eager to make a lot of money, many companies can and do charge thousands of dollars for lessons.

Some may be quite good and effective, but others may leave you feeling cheated.

It’s best to research such courses as much as possible before you sign up, and to ask about satisfaction guarantees. (Note that some courses on investing cost as little as a few hundred dollars.)

There are also plenty of ways to learn about investing at little or no cost.

For example, you might read books about great investors and their wisdom; it can also be effective to read up on great businesses to learn how they grow and how to recognize them.

Some brokerages offer free educational resources.

And websites such as Fool.com offer tons of articles for free – on investing, on specific companies and more.

Once you start investing, you might want to go slow until you’re comfortable, and give yourself a chance to learn some lessons the hard way – by making common blunders and losing some money.