Ranking Zoom On My Homegrown Checklist

Hey Fools,

Here’s my attempt to rank ZM


**Metric (score potential)                                            ZM** 

**Financial:**
Financial Resilience:(0 - 5)                                        5
Gross Margin: (<50%, 50% to 80%, >80%) (0 - 3)                      2 
Returns On Capital: (Low, Average, Rising)(0 - 3)                   1  (low but rising fast) 
FCF: (Negative / Positive / Positive and growing fast) (0 - 3)      3  
EPS: (Negative / Positive / Positive and growing fast) (0 - 3)      3 
 
**Moat:**
Network effect (None / Weak / Strong) (0 - 15)                      5 (weak, but some)
Switching costs (None / Weak / Strong) (0 - 15)                     5 (weak, but some)
Durable Cost Advantage:(0 - 15)                                     
Intangibles: (0 - 15)                                               5 (brand)
Moat Direction: (Narrowing / Stable / Widening) (0 - 5)             5 (huge business momentum/Magic Quadrant leader) 

**Potential:**
Optionality:(0 - 7)                                                 4 (Zoom Phone, but i don't see much beyond video)
Organic Growth Runway: (G.D.P. / 2x or 3x G.D.P. / 15%+) (0 - 4)    4  
Top dog And/Or Industry Disruptor:(0 - 3)                           3 (disruptor) 
Operating Leverage Ahead?(0 - 4)                                    4 

**Customers:**
Acquisition:(0 - 5)                                                 3 (expensive, but much lower than other SaaS stocks)
Dependence: (0 - 5)                                                 5 

**Company-specific factors:**
Recurring Revenue: (None / Some / Tons) (0 - 5)                     5 
Pricing Power: (None / Inflation / Tons) (0 - 5)                    5 
 
**Management & Culture:**
Soul in the game: (Founder/Family Run/Long Tenured CEO) (0 - 4)     4 
Inside ownership: (None / Modest / Very High) (0 - 3)               3 
Glassdoor ratings: (0 - 4)                                          4  
Mission statement? (Simple, Inspirational, Optional-able) (0 - 3)   3

**Stock:**
Performance Vs. S&P 500:(0 - 4)                                     1 (partial credit for day 1 pop but not enough data)  
Shareholder Friendly Actions:(0 - 3)                                0  
Consistently Beats Expectations?(0 - 4)                             0 (not enough data)

**Pre Gauntlet Score: 83 (excellent)** 

**The Gauntlet**
Customer Concentration:(-5 , -3, 0)                                 0 
Industry Disruption:(-5, -3, 0)                                     0 
Outside Forces:(-5, -3, 0)                                          0 
Big Market Loser: (-5, -3, 0)                                       0
Binary Event: (-5, 0)                                               0  
Extreme Dilution: (-4, -2, 0)                                       0 (not enough data) 
Growth By Acquisition: (-4, -2, 0)                                  0 
Complicated Financials (-3, 0)                                      0 
Antitrust Concerns: (-3, 0)                                         0
Political Risk: (-3, -2, 0)                                         0
Currency Risk:(-2, -1, 0)                                            

**Final score: 83 (excellent)**

For perspective, the highest score possible is 100, and the lowest score possible is -44.

Zoom’s 83 is truly AMAZING. This number could go even higher if the company regularly beats
expectations and smashing the S&P over time.

As most of you know, the tough thing right now is that Zoom’s premium is crazy. A lot of success is already priced in at 50x+ sales.

Still, there’s no doubt in my mind that this is a VERY high-quality business.

Brian

*******
FAQ:

Is there a spreadsheet that has all of your data? Yes, but I do not want to make it publicly available. I will post on a company by company basis to the boards. Feel free to follow me if you want to see my most recent rankings.

**What companies have received the highest scores so far?**Alphabet (88), Paycom Software (86), MercadoLibre (85), Amazon (85), HubSpot (85), Adobe (84), Paylocity (84), and Q2 Holdings (84)

What data do you have to show that this methodology works? Very little. I’m currently thinking through ways to measure its long-term effectiveness, but my gut feeling tells me that it will help me pick better stocks.

What about valuation? This data is only designed to help me determine business quality, which is far more important than valuation. Whenever I personally make buy/hold/sell decisions, I always consider valuation too, but I think it is small “f” foolish to not buy a truly great business just because of valuation concerns.

You can read more about the checklist here: http://discussion.fool.com/brian39s-quality-checklist-version-20…


21 Likes

ZM is waaaay overpriced. If sales expand another 100% over the next year it would still be overpriced. There are better candidates discussed here than dealing with this bubble.

🆁🅶🅱
wordlessly watching, he waits by the window and wonders…

5 Likes

ZM is waaaay overpriced. If sales expand another 100% over the next year it would still be overpriced. There are better candidates discussed here than dealing with this bubble.

I agree, it could expand 100% over the next year and you may be worse off with our other stocks.

It could also rise 125% each of the next two years and the stock could rise more than all of our other stocks. I’m not willing to bet on that, but it’s not outside the realm of possibility.

Worth keeping an eye on tho, incase it goes on sale at some point

-mekong

3 Likes