Dropbox's Q2 results were a preview of what is to come with both revenue and Free Cash Flow growth decelerating from the previous year. On August 4th, 2022, Dropbox released quarterly results for its second quarter, which ended June 30th. I now expect Dropbox to be fairly valued at $27.12, with an upside of 28.1% in the base case. However, I lower my rating from "strong buy" to "buy," primarily because of weaker-than-expected revenue growth that is well below the industry average. I remain bullish on the stock mainly due to Dropbox's ability to generate free cash flow and smart value realization on the side of management in the form of share buybacks and M&A. When I first initiated my a rating for Dropbox stock in September 2021, I spoke of a hybrid relationship between growth and value, which is now heavily skewed towards the value aspect of the argument. However, while the advanced profitability is undoubtedly appealing, growth has slowed down significantly and is expected to decelerate even more in H2 2022. Dropbox ( NASDAQ: DBX) stock has underperformed the broader tech-market over the last year, which may come as a surprise since Dropbox generates robust free cash flow, which should favor the stock in times of interest hikes and market rotation towards value stocks.
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