Dropbox Makes A Push For 52 Week High

It’s been a solid few months for cloud storage giant Dropbox (NASDAQ: DBX) who have watched their stock rally 55% from all-time lows in March to within touching distance of their 52-week highs yesterday. With a 9% jump to start the week, their stock is looking more eager than ever to break the downtrend that has plagued it since shortly after its IPO in 2018.

The catalyst for the latest push comes from Jefferies who upgraded the stock from a Hold to a Buy rating on Monday. While their analyst Brent Thill is growing skeptical of current valuations for some tech names like Zoom Video (NASDAQ: ZM) and Slack (NYSE: WORK), he’s bullish on Dropbox’s ability to deliver results based on fundamentals. With a growing disconnect in recent weeks between the tech-heavy NASDAQ index and the industrial heavy Dow Jones index, the ability for tech companies to actually deliver on the hype is more important than ever.

Dropbox Stock Justifying The Hype

We’ve been seeing pre-revenue tech companies skyrocket based on hopes and dreams and some are calling this a repeat of the frenzy seen during the tech bubble of 1999. However Dropbox’s ability to meet investor’s expectations on margin goals and traffic should result in a continued uptrend, Thrill argues. He upped his price target to $28 from $22 which represents a bit more than a 20% jump from yesterday’s closing price.

Were shares to hit this in the coming weeks and months, not only would they be at one-year highs, but essentially at two-year highs and firmly above the triple top of resistance that shares put in between 2018 and 2019.

All the internal signs point to this being an achievable goal in the near future. For the first time since its IPO, the company reported its first quarterly profits in May. It smashed analyst's expectations for its topline and bottom-line numbers while posting 18% year on year growth in revenue. What a time to finally start answering all the questions that have been asked of it.

There’s no doubt that the arrival of the coronavirus and the associated shutdowns and office closures helped drive new business in Q1 and Wall Street will be watching the next earnings report closely to see if this trend has continued into the summer. Work-from-home related stocks have been in hot demand since the initial wave of COVID and with cases continuing to surge, this is unlikely to change in the near term.

Dropbox Shares Still Looks Cheap

Barron’s were out with a bullish stance on the company in late May, noting its attempts to position itself as a neutral player between an ever-increasing field of workspace applications. At the same time, it’s becoming more profitable than ever while still only trading at 4x enterprise value to forecasted 2021 sales. For context, at the time Zoom was trading at 46x, Slack at 18x and Atlassian at 20x. This makes Dropbox look very much like an undervalued tech stock that is ready to play catch up with its peers.

Looking ahead to the longer term, for the first time ever, Dropbox has a winning quarter to start building some consistency on. Investors are happy to let the share price feed off that potential and the company will be aiming to deliver on that early next month. In the meantime, those on the sidelines should watch for $24 as the next target and closest level of resistance. This is the highest level shares hit after March’s crash and getting past it would signal the bulls intent to keep the party going.