Dropbox (DBX) has gotten off to a fantastic start in 2021. The stock is up 20% and we are only three months into the year.
Though plenty of stocks have had a solid start to the new year, some have spiked as a result of investor enthusiasm as opposed to the individual merits of the companies. The stock market’s rising tide has also lifted many stocks higher, making it that much more challenging to identify truly meritorious stocks deserving of their current lofty prices.
Is DBX’s upward ascent justified? Is the stock overvalued? Will the rally continue? Let’s find out.
Why DBX’s Rise is Justified
DBX is a tech stock yet it has a fairly low forward P/E ratio of 21.59. This figure should whet investors' appetites all the more considering DBX is currently priced a mere 50 cents away from its 52-week high of $28.33. Even if DBX were to move past its 52-week high, its forward P/E ratio would still be in the low 20s, meaning it is a solid value at its current trading price.
DBX recently announced it is acquiring DocSend for a cool $165 million. This is the latest of several strategic acquisitions made by DBX. It is interesting to note the acquisition of DocSend is 100% cash as opposed to stock. The combination of Dropbox, DocSend, and HelloSign sets the stage for DBX to provide a comprehensive suite of sullying secure products that facilitate managing document workflows from beginning to end in a self-serve manner.
The seemingly ever-increasing rise in demand for DBX products and services has been heightened all the more as a result of the transition to remote work during the pandemic. DBX finished the year with more than 15 million paying clients, a nearly 10% spike from the prior year. Add in the fact that DBX's user base is increasing spending by 4% on average and there is even more reason to believe in the company.
DBX finished the year with nearly $2 billion in revenue, a figure that represents a 15% spike from the prior year. The company generated around $490 million in free cash flow, equating to a 26% margin for the year. The free cash flow margin for the prior year was 24%. If everything goes as planned, DBX will hit a billion dollars of free cash flow by '24 with fantastic operating margins of around 30%.
DBX According to the Analysts
The analysts have high hopes for DBX. The average analyst price target for the stock is $29.43, meaning it has upside potential of 28.24%. The analysts' high target price for the stock is $37. The analysts' low target price for the stock is $23. Of the 11 analysts who have issued a recommendation for DBX, four consider it a Strong Buy, four consider it a Buy, two consider it a Hold, one considers it a Sell and one considers it a Strong Sell.
DBX POWR Ratings
DBX has an A POWR Rating, meaning it is a Strong Buy. The stock has an A grade in the Growth component along with B grades in the Quality and Momentum components. You can find out more about how DBX fares in the Sentiment, Stability and Value components of the POWR Ratings by clicking here.
Of the 79 publicly traded companies in the Technology - Services space, DBX is ranked 6th. Investors who would like to learn more about the stocks in this industry can learn more by clicking here.
Will the Rally Continue?
It's likely. DBX still has a reasonable forward P/E ratio and the remote work trend will likely continue for the foreseeable future as the pandemic has changed in the manner in which work is conducted.
Even if you are a bit hesitant to pull the trigger on the purchase of DBX shares following its rise, you should be comforted by the stock’s impressive POWR Ratings. DBX has an A POWR Ratings grade, meaning it is a Strong Buy. Add DBX to your portfolio today, hold it across the long haul and you will likely be pleased with the payoff.
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DBX shares were trading at $27.72 per share on Tuesday afternoon, down $0.24 (-0.86%). Year-to-date, DBX has gained 24.92%, versus a 6.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.Up 20% in 2021, Will Dropbox Continue to Rally? appeared first on StockNews.com