Opinions
Ross Healy
Dropbox Inc
DBX-Q
RISKY
Nov 18, 2020
Can't find all that much wrong, or right, with the stock. Price to book is 8x, so not cheap. Reasonable value for a hypergrowth stock, as it's only 18% overvalued. Technically, $17-17.50 should hold. At that level, could be looking at a nice trade.
$18.640
Stock price when the opinion was issued
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TOP PICK
It is challenging picking a Top Pick in tech as many of the companies are close to price targets. It will benefit from the trend in remote work. They have over 600 million users, most don't pay, so the challenge is to monetize that group. They are expanding into enterprise and they purchased a security software company. They make a good profit and their goal is to hit $1 billion in free cash flow within three years. Yield 0% (Analysts’ price target is $27.80)
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COMMENT
It'll continue to benefit from work from home. Cloud computing will remain important. It'll be more and more important for them to upsell higher services to their customers. He prefers, likes and uses (in his office) CTXS which offers more office functionality than Dropbox currently. CTXS is also in the cloud business. Dropbox is seen as a platform to share documents, but the companies that will do well in this space are those that enhance office productivity.
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DON'T BUY
Like Slack, everybody loves this. But he regards this is an orphan without a catalyst to push it up.
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DON'T BUY
Problem is that it lacks earnings momentum. Also, Microsoft is so competitive. Look for other tech stocks.
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TOP PICK
Though not heavily covered, Dropbox has its fans. Tech-stock analyst Kim Bolton last month made Dropbox a top pick based on the ongoing work-from-home trend. However, most of DBX's 600 million users don't pay for Dropbox's file storage services, so the company is expanding into enterprise by purchasing HelloSign, a security software company known for its e-signature. The $230 million deal was Dropbox's first acquisition. Last month, Jefferies upgraded its price target of Dropbox from $22 to $28, hailing the company's double-digit revenue growth. The lockdown spiked Dropbox usage by 14% in March and 6% in April, though declined 4% in May. Dropbox reported 18% revenue growth in Q1, and analysts projects annual EPS growth at 32% over five years. Dropbox didn't suffer as sharp as decline during the March bottom, though it now trades just a dollar below its 52-week high of $24.14, and nearly $5 shy of its $27.70 price target. However, its PE is 455x.
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