Is it safe to invest in Zoom shares as JPMorgan points 40% upside?

On Friday, Zoom Video Communications Inc. (NASDAQ:ZM) shares edged higher by 1.72% after JPMorgan upgraded the stock to overweight from neutral. Analyst Sterling Auty cited the company’s potential in the unified communications as a service (UCaaS) space as a major catalyst for growth. 

The analyst expects Microsoft Corporation (NASDAQ:MSFT) to continue dominating the industry, but also thinks Zoom could be the other major player. Auty also said any post-pandemic slowdown has already been baked in ZM’s stock price, leaving more room for growth.

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Zoom shares have declined nearly 23% this year and by over 46% over the last 12 months, creating an entry opportunity for buyers.

Is it too early to bet on growth?

From a valuation perspective, Zoom shares trade at steep 12-month trailing and forward P/E ratios of 84.07 and 56.77, respectively. As a result, value investors may opt for alternatives in the market.

On the other hand, analysts expect Zoom’s earnings per share to grow by nearly 45% this year, before rising at an average annual rate of 13.58%. However, this year’s growth prospects may already be included in the current stock price, thus leaving little room for more upward movement.

Therefore, it may be worth monitoring the company’s performance in the coming quarters before buying.

Technically, Zoom shares seem to have recently bounced off the key support at about $254 to complete an upward breakout from the descending channel. 

As a result, the stock has moved closer to the overbought conditions of the 14-day RSI. However, there is still room left to run before crossing to overbought territory.

Therefore, investors could target extended gains at about $305.68, or higher at $330.69, while $254.09 and $230.82 are support levels.

Not too late to buy the bounce

In summary, although Zoom shares have bounced recently to surge closer to overbought conditions, there is still room to run before running deep into the territory. 

Therefore, investors could buy the stock whilst monitoring performances to determine the perfect time to sell.

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