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Finance

Are Shares of Dropbox (DBX) a Buy at Current Levels?

  • An oversubscribed IPO- The stock currently trades at half its high

  • An impressive earnings history over the past four quarters

  • DBX is suffering from the post IPO blues in 2019, but the shares offer value at below $18

Dropbox, Inc. (DBX) is a company that makes it possible for individuals, teams, and organizations to share files and cloud content. The company earns revenues through subscriptions for premium features. Dropbox has approximately half a billion registered users across 180 countries around the world.

Dropbox was initially named Evenflow, Inc and began operations in 2007. The company changed its name in 2009, and its headquarters are in San Francisco, California.

Over the past four quarters, DBX reported earnings that beat the consensus estimates of analysts. However, the shares continue to decline and underperform the overall stock market.

An oversubscribed IPO- The stock currently trades at half its high

Dropbox prices its initial public offering above expectations at $21 per share on Thursday, March 22, 2018. The price valued the company at around $8.2 billion. DBX sold 36 million shares as the offering was 25 times oversubscribed. Dropbox raised $756 million in its IPO.

Meanwhile, the $8.2 billion valuation in 2018 was lower than the $10 valuation it received in a 2014 private funding round. The IPO price was a sign of things to come for the company as its valuation declined since the public offering of shares.

As of Friday, December 20, 2019, DBX had a market capitalization of $7.4 billion, with the share price at just under $18.

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(Source: Barchart)

The initial euphoria of the oversubscribed IPO caused DBX to open at $29 per share in March 2018 and took the stock to a high at $43.50 in mid-June 2018. Since then, the chart illustrates that DBX has made lower highs and lower lows, falling to its most recent bottom at $16.08 per share on December 13. At $17.86 last Friday, DBX shares were not far above the low.

 

An impressive earnings history over the past four quarters

Unlike many other companies that have come to market over recent years, DBX makes money.

(Source: Yahoo Finance)

As the chart shows, not only has DBX announced positive earnings over the past four quarters, the company has also exceeded consensus earnings per share estimates. In the most recent quarter, DBX earned 13 cents per share, exceeding analyst expectations by two cents.

According to Yahoo Finance, the average price target for DBX shares was at $29.42 as of the end of last week. The survey included twelve analysts with a range from $19 to $37 per share.

 

DBX is suffering from the post IPO blues in 2019, but the shares offer value at below $18

The list of companies suffering from the post-IPO blues grew in 2019, as both Lyft (LYFT) and Uber (UBER) are both well below their initial prices. The debacle surrounding WeWork was another warning as all of these companies have failed to show earnings that would support valuations.

Meanwhile, DBX is a company that has consistently made profits, making its share price at below $18 attractive in the current environment. With the stock market at an all-time high, it is a challenge to find companies that offer value. DBX’s earnings record should lift the price of its shares in 2020.

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DBX shares were trading at $17.81 per share on Monday morning, down $0.05 (-0.28%). Year-to-date, DBX has declined -12.82%, versus a 30.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More…

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