Should You Buy the Dip in This Software Stock?

This San Francisco-based software development company offers software-as-a-service (SaaS) to companies in North America, Latin America, Europe, the Middle East, Africa, and the Asia Pacific. Its products enable billions of conversations, connecting more than…

100,000 brands with hundreds of millions of customers via phone, chat, email, messaging, social media, communities, review sites, and help centers. Zendesk Inc. (ZEN – Get Rating) is pursuing various strategies to grow by 2023 and accelerate its revenue to $3.5 billion in 2024.

However, its stock has declined 29.5% in price year-to-date and 13.6% over the past month. Moreover, closing the last trading session at $104.8, the stock is currently trading 37.1% below its 52-week high of $166.6, which it hit on February 5, 2021.

In addition, an ongoing evaluation related to ZEN’s merger with Momentive Global Inc. could raise investor anxiety surrounding the stock. Given the stock’s steep valuation and poor profitability, its near-term prospects look uncertain.

 

Click here to check out our Software Industry Report for 2021

 

Here’s what could influence ZEN’s performance in the coming months:

Ongoing Lawsuit

This month, Halper Sadeh LLP, a global investor rights law firm, is evaluating whether the merger of Zendesk, Inc. with Momentive Global Inc. is fair to Zendesk shareholders. After the deal, Zendesk investors will own approximately  78% of the combined company. The investigation concerns whether Zendesk and its board violated federal securities laws or breached their fiduciary obligations to shareholders by failing to disclose all material information required to assess and value the merger deal appropriately. Because investors remain concerned about the lawsuit, ZEN’s stock could take a major hit.

Poor Profitability

 

ZEN’s 0.6% trailing-12-months asset turnover ratio is 13% lower than the 0.7% industry average. Also, its ROC, net income margin and EBIT margin are negative 6.1%, 18.6%, and 12.8%, respectively. Furthermore, its $180.64 million trailing-12-months cash from operations is 61.9% lower than the $111.59 million industry average.

Impressive Growth Prospects

A $379.6 million consensus revenue estimate for the next quarter (ending December 2021) indicates a 28.8% improvement year-over-year. Analysts expect ZEN’s EPS to rise 23.5% in the next quarter.

The Street expects ZEN’s revenues and EPS to rise 29% and 25%, respectively, year-over-year in its  fiscal year 2021. Also, the company’s revenue is expected to…

 

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