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Bull Of The Day: Dropbox (DBX)

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Dropbox (DBX - Free Report) is a pioneer of cloud storage. Having been an early mover in the cloud-computing market in 2007, it's been able to sustain a sizable market share of this proliferating segment. Dropbox has been operating in a rapidly saturating space, which has caused its stock to take a hit since it went public in early 2018, but now may be the perfect opportunity to jump into this overlooked cloud-computing name.

Analysts have been driving up their estimates following Dropbox's excellent Q2 results (posted earlier this month), pushing DBX into a Zacks Rank #1 (Strong Buy).

The Business

Since Dropbox's digital inception in 2007, the enterprise has become much more than just a cloud storage service. It is now a smart workspace platform with capabilities ranging from project management to document workflow. Dropbox is attracting new customers with its open ecosystem, allowing businesses to link third-party applications to this platform's agile workspace. These third-party applications include Salesforce (CRM - Free Report) , Adobe (ADBE - Free Report) , Splunk (SPLK - Free Report) , Slack (WORK - Free Report) , along with a cornucopia of other highly utilized enterprise solution applications.

Since Dropbox went public just over 2 years ago, it has increased its paying user base by over 30% to 15 million. The platform has north of 550 billion pieces of content and more than 600 million registered users, with 80% of its subscribers using this service for work. Dropbox's conversion from registered users to paying users has grown since it went public, and I anticipate this conversion rate growth to continue as the business develops.

DBX has fallen under the radar after a bumpy first year, but it may be an excellent time to jump into the secular tech expansion without the fear of buying the peak. The world's rapid digitalization in 2020 has conditioned society to rely on cloud technology for daily functionality, whether it be to learn, work, or to be entertained.

Financials & Performance

The pandemic has provided all cloud players with a strong tailwind, and Dropbox is no exception. 2020 has propelled DBX into strong profitability after 13 years of a bottom-line deficit. The enterprise has continued to produce robust cash-flows since it went public in 2018 and has a fortress of a balance sheet.

The $1.1 billion in cash combined with its reliable cash-flows from its subscription services, gives the firm enormous financial flexibility for continued organic growth and strategic acquisitions. Dropbox's recent purchase of e-signature company HelloSign (closed in January of 2019) for $230 million broadened its portfolio of services and was well-timed as online document signing has taken off in 2020.

DBX has continued to outperform analysts' conservative expectations, yet the shares have only appreciated 12% this year, far underperforming its constituents in the tech-driven Nasdaq 100 by 22%. DBX has tested its February highs of roughly $23.70 three separate times since the pandemic trade began and failed to breakthrough. These shares are poised to soar through this level next time it is reached as they bounce off their 200-day moving average (shown in the TradingView video below).

Final Thoughts

6 out of 7 analysts call this stock a buy today with an average price target of $28 per share, representing a roughly 47% upside from the $20.30 it's trading at today. I would not hesitate to pull the trigger on this uncovered cloud-computing pioneer.

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