ZOOM COMMUNICATIONS INC (NASDAQ:ZM) – A Quality Stock Worth Considering

ZOOM COMMUNICATIONS INC (NASDAQ:ZM) was identified as a potential quality investment through our Caviar Cruise stock screener. The company demonstrates strong profitability, financial health, and growth characteristics, making it an interesting candidate for long-term investors. Below, we examine why ZM meets the criteria for quality investing.

Key Strengths of ZM as a Quality Investment

• Strong Profitability: ZM has an impressive Return on Invested Capital (ROIC) of 68.45%, well above the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
• Revenue and EBIT Growth: Over the past five years, ZM has delivered an annual EBIT growth of 129.77%, significantly outpacing its revenue growth of 2.81%. This suggests improving operational efficiency and pricing power.
• High Profit Quality: The company’s five-year average Profit Quality stands at 371.14%, reflecting its ability to convert net income into free cash flow effectively.
• Zero Debt: ZM has no outstanding debt, resulting in a Debt-to-Free Cash Flow ratio of 0. This positions the company favorably in terms of financial stability.
• Solid Margins: ZM maintains strong gross (75.85%) and operating margins (18.13%), outperforming most peers in the software industry.

Valuation and Growth Outlook

ZM trades at a reasonable valuation, with a P/E ratio of 14.43, below both the industry and S&P 500 averages. While near-term revenue and earnings growth expectations are modest (2.81% and 0.09%, respectively), the company’s past performance and profitability metrics suggest resilience.

Fundamental Analysis Summary

Our fundamental report assigns ZM a rating of 7 out of 10, highlighting its excellent profitability and financial health. The company ranks well within its industry, particularly in margins and solvency, though its ROIC has room for improvement compared to historical averages.

For more quality investment ideas, explore our Caviar Cruise screener.

Disclaimer

This is not investing advice! The observations here are based on current data, but investors should conduct their own research before making decisions.