At just 12x this year’s free cash flow, Zoom Communications stock could be an incredible buy.
Pandemic communications star Zoom Communications (ZM 10.22%) stock, um (I’m trying not to say “zoomed”), moved ahead quickly Friday morning, rising 8% through 9:50 a.m. ET after beating soundly on its fiscal Q2 2026 earnings report last night.
Analysts forecast Zoom would earn $1.38 per share, adjusted for one-time items, on sales of $1.2 billion. Zoom earned $1.53 instead, and sales were a bit ahead of $1.2 billion.
Image source: Getty Images.
Zoom Q2 earnings
The report wasn’t quite as good as that makes it sound. Sales grew less than 5% year over year, and Zoom’s earnings as calculated according to generally accepted accounting principles (GAAP) weren’t quite as robust as the “adjusted” figure. GAAP profits were actually only $1.16 per share.
Still — and here I’m going to say it — those earnings zoomed 66% higher in comparison to last year’s Q2.
(For what it’s worth, the rise in adjusted earnings was only 10%).
Is Zoom stock a buy?
Commenting on the results, CEO Eric Yuan said “Zoom is at the forefront [of how] AI is transforming the way we work together,” essentially arguing that Zoom is an artificial intelligence stock — and the numbers back him up.
Zoom generated an incredible $508 million in Q2 free cash flow (FCF), up 39% year over year, and the company’s generated nearly $1 billion ($971.3 million, to be precise) in FCF so far this year. If Zoom can keep going at that rate, the company could conceivably rack up nearly $2 billion in cash profits this year, and at a market cap of only $24 billion, this would value the stock at barely 12 times FCF.
Whether Zoom’s growing at 66%, 39%, or even only 10%, that probably makes it a great growth stock buy.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Communications. The Motley Fool has a disclosure policy.