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Zoominfo (NASDAQ:ZI) stock soared after its IPO in early June. Going public at $21 per share, ZI stock rallied to prices well above $60 per share. Despite the recent market “melt-up” and a strong earnings report a few weeks back, shares have headed lower and now trade for around $38 per share.
While investors may be cashing out, the pullback may be a solid entry point for this AI play. While hype has faded, this company’s prospects remain strong. Crushing it on sales and earnings, high growth remains in motion. And that’s no surprise, given some of its major customers include names like Zoom Video (NASDAQ:ZM). These are the kinds of tech companies that have seen tremendous tailwinds from the novel coronavirus pandemic.
Beyond near-term tailwinds, there’s a long-term bull case to be made for Zoominfo. As demand for AI-driven market intelligence continues to speed up, double-digit growth will continue.
Granted, even after the sell-off, shares trade at a premium valuation. Given this company’s strong growth prospects, this is definitely a “paying up for quality” situation.
With shares holding steady at today’s price levels, now’s the time to pounce.
ZI Stock and Near-Term Catalysts
After the sell-off, it looks temping to dive into Zoominfo. But, what near-term factors will help move the needle again? Firstly, continuing tailwinds from the pandemic.
As this crisis continues to give a boost to the stay-at-home economy, names like this one will keep on posting better-than-expected results. Why? With trade shows and conferences on hold, sales teams are having to go completely digital in the pursuit of new clients.
That’s where Zoominfo comes in (and cleans up). The company, which uses artificial intelligence (AI) to help sales teams in lead generation, is experiencing the same windfall other stay-at-home economy plays are seeing right now.
That’s why sales grew 62% year-over-year, well above Wall Street’s projections. As this “new normal” continues, expect the company to continue crushing it in the next few quarters.
Near-term catalysts aren’t the only reason why ZI stock looks attractive at today’s prices. Its exposure to AI megatrends gives good reason to make this a long-term play.
AI Megatrends Mean Long Runway For Zoominfo
You know how big a fan I am of megatrends. These are the large-scale economic changes disrupting old industries and creating new ones. A major megatrend is the mass adoption of AI technology.
When you hear “AI,” you may be think of applications like self-driving cars. But, business development is another area seeing disruption thanks to mass adoption of this technology. Big data is part-and-parcel to modern day sales and business development.
Able to comb through more information in less time, companies like Zoominfo provide the solutions that help enterprise sales teams generate solid leads, and convert said leads into sales.
This type of service is in more demand than ever due to the pandemic. Even when we get “back to normal” and traditional marketing channels like conferences open back up, Zoominfo’s services will remain in red-hot demand.
Granted, even after the pullback, Wall Street is well aware of this massive potential. That’s why the stock continues to trade at a rich valuation, with forward price-to-sales (P/S) and price-to-earnings (P/E) ratios of 38.7x and 282x, respectively.
Don’t split hairs when it comes to valuation. When you have a company like this, with growth rates well in the double-digits, you need to pay up for quality. You aren’t buying ZI stock for its current earnings. Instead, you are buying in anticipation of what this business could be worth several years down the road.
With its market (data-driven lead generation) benefiting from AI megatrends, the runway is long, and opportunity remains massive. With this in mind, today’s valuation multiples aren’t that much of a concern.
Seize the Opportunity at Today’s Price Levels
Investors have cooled on Zoominfo in the past two months. Chomping at the bit to buy after the IPO, shares are down more than 40% off their highs. But don’t take that to mean the party’s over.
Far from it! As I said above, near-term tailwinds from the pandemic are helping to speed up the company’s growth. Long-term megatrends fueling the use of its services means there’s continued high growth for years to come.
Don’t split hairs on valuation, and don’t get scared by the recent sell-off. Seize the opportunity and buy the pullback in ZI stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
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