The shift towards remote and flexible work arrangements is driving growth in the tech and software industry by increasing the demand for digital tools, cybersecurity, and cloud services. As more companies adopt remote work or hybrid policies to attract and retain top talent, investments in technology solutions to support these changes are expected to rise, boosting the sector's prospects.
Therefore, investors could consider investing in strong work-from-home stocks such as Zoom Video Communications, Inc. (ZM) and DocuSign, Inc. (DOCU), given their significant potential.
In today’s competitive landscape, remote work thrives on reduced IT costs and enhanced flexibility through web and mobile access. SaaS facilitates this by lowering IT expenses, offering seamless access, and boosting efficiency. This flexibility makes remote work more practical and appealing to businesses. The global SaaS market is projected to grow at a 6.2% CAGR, reaching $325.84 billion by 2028.
Furthermore, work-from-home trends have transformed the IT services sector through remote desktop support, chat support, and video conferencing. The integration of cloud, IoT, and AI has driven demand for specialized work and collaboration, underscoring the tech industry's role in remote work. The U.S. IT services market is projected to grow to $630.76 billion by 2029, reflecting a 6.5% CAGR.
Given the favorable trends indicating promising investment opportunities, let’s closely examine the fundamentals of the work-from-home stocks mentioned.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, Zoom Conference Room Connector, Zoom Events, OnZoom, and Zoom Webinars.
On August 8, 2024, ZM unveiled new AI features, including AI-generated virtual backgrounds and enhanced meeting summaries. They also introduced a page builder for customizable event landing pages, streamlining event creation with AI-driven text and image generation.
In terms of the trailing-12-month gross profit margin, ZM’s 75.89% is 53.3% higher than the 49.49% industry average. Similarly, its 41.04% trailing-12-month levered FCF margin is 295.5% higher than the 10.38% industry average. Also, its 8.33% trailing-12-month Return on Total Assets is 282.6% higher than the 2.18% industry average.
ZM’s revenues for the second quarter, which ended on July 31, 2024, increased 2.1% year-over-year to $1.16 billion. Similarly, its gross profit rose marginally over the prior-year quarter to $877.43 million.
For the same quarter, the company’s non-GAAP income from operations stood at $455.54 million. In addition, the company’s non-GAAP net income was $436.42 million, or $1.39 per share, up 6.6% and 3.7% from the prior year’s quarter, respectively.
Street expects ZM’s revenue for the quarter ending October 31, 2024, to increase 2.4% year-over-year to $1.16 billion. Its EPS for the same quarter is expected to rise 1.4% year-over-year to $1.31. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 14.4% to close the last trading session at $68.95.
ZM’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #10 out of 75 stocks in the Technology - Services industry. It has a B grade for Value, Sentiment, and Quality. Click here to see ZM’s ratings for Growth, Momentum, and Stability.
DocuSign, Inc. (DOCU)
DOCU provides electronic signature solutions internationally. The company offers DocuSign e-signature solution that enables sending and signing of agreements on various devices.
On June 4, 2024, DOCU announced a new Connector for SAP Ariba solutions. This tool automates workflows between DOCU’s CLM and SAP Ariba, simplifying the source-to-pay process. It will be available globally starting in September and will be showcased at SAP Sapphire events.
In terms of the trailing-12-month net income margin, DOCU’s 3.81% is 3% higher than the 3.71% industry average. Likewise, its 3.42% trailing-12-month Capex / Sales is 61.3% higher than the 2.12% industry average. Furthermore, its 11.37% trailing-12-month Return on Common Equity is 139.8% higher than the 4.74% industry average.
DOCU’s total revenues for the first quarter that ended April 30, 2024, rose 7.3% year-over-year to $709.64 million. The company’s non-GAAP income from operations stood at $202.09 million, up 15% from the previous year’s quarter. Additionally, DOCU’s non-GAAP net income came in at $172.84 million and $0.82 per share, representing 15.1% and 13.9% year-over-year, respectively.
Analysts expect DOCU’s EPS and revenue for the quarter ended July 31, 2024, to increase 11.8% and 5.8% year-over-year to $0.80 and $727.84 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 35% to close the last trading session at $58.89.
DOCU’s POWR Ratings reflect its bright outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary system.
It is ranked first out of 18 stocks in the A-rated Software – SAAS industry. It has an A grade for Growth and a B for Value and Quality. Click here to access additional ratings for DOCU’s Momentum, Stability, and Sentiment ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ZM shares were trading at $69.06 per share on Friday afternoon, down $0.88 (-1.26%). Year-to-date, ZM has declined -3.96%, versus a 18.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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