Technology

Dropbox Analyst Sees Compelling Reasons to Buy Shares

Jon C. Ogg

Published: October 22, 2019 11:35 am

Last Updated: January 30, 2020 2:17 pm

Investors are looking for new ways to make money with the stock market at all-time highs again. One issue that may bring fruit at this stage of the economy is value stocks, and in particular the companies in which the shares have been beaten down perhaps more than they should have.

In Tuesday’s top analyst upgrades and downgrades montage, Dropbox Inc. (NASDAQ: DBX) was given a key analyst upgrade. This stock had seen a drop of about 23% over the past three months, and many investors have lost patience with the company. Dropbox was a great unicorn in the past, but persistent issues with turning free subscribers into paying ones were also magnified by subscriber churn, wherein paying subscribers went to other subscription services or they just went to free options.

Normura/Instinet upgraded Dropbox to Buy from Neutral on Tuesday. Analyst Christopher Eberle also raised Dropbox’s price target to $25 from $24. The shares previously closed at $18.92 apiece, which implied upside of 32% to the price target. While the $1 bump may not sound that exciting, investors had seen a prior consensus analyst target price from Refinitiv of $29.73.

Several key points were obvious from the Nomura/Instinet report:

1) the stock may be nearing an inflection point after six quarters of revenue deceleration;

2) an attractive valuation versus peers and historical metrics;

3) expect more disclosure from recurring revenue expectations

4) expects to see upside to estimates when it reports

5) better churn management

6) shares have underperformed with a 20%-plus drop in last 3-months

Dropbox shares traded up 1.5% to $19.21 on Tuesday, with a $7.7 billion market cap and a $17.20 to $27.15 price range over the past 52 weeks.

Dropbox shares were as high as $32.50 in June of 2018, and the March 2018 initial public offering was above its anticipated range at $21 per share.