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Zoom's cloud-based service allows people in different locations with different devices to connect face-to-face and share content via video, voice and chat. And in the COVID pandemic, people increasingly turned to the service as the work-from-home era stretched on.
Zoom remains popular in workplaces, though its stock price has dropped considerably since the early days of the pandemic. Does Zoom stock belong in your portfolio? Read on to find out how to evaluate Zoom stock and decide whether to buy.
1. Research Zoom and its stock
Zoom makes money by selling its platform subscriptions to everyone from single users to companies with hundreds of thousands of employees. Unlike some other firms, Zoom went into its IPO as a profitable company.
But profitability is just one factor investors should consider before buying a stock. Spend some face time with Zoom's most recent annual report as well as its S-1 filing, both available on its investor relations website. These are a treasure trove of information about the company’s operations, financials, customers, case studies, leadership team, challenges and growth opportunities. In other words, all the things that can help investors determine if Zoom is a worthy addition to their portfolio.
Research and data are also available via online brokers or independent analysis sites like Morningstar. One reminder: Zoom trades on the Nasdaq under the ticker symbol ZM.
» Want more detail? Learn how to research stocks
2. Consider whether you should buy Zoom stock
If you're still keen after doing some research, consider how Zoom stock would slot in among the rest of your portfolio. Specifically, look at how diversified your portfolio is and what this new investment would mean for your asset allocation. A general guideline for investors is to spread money across different companies, industries and geographies, thereby reducing risk and exposure to any one stock's sudden movements.
Would buying Zoom put you too deep into the technology sector? Would it tip your portfolio too far into stocks as a whole? (As opposed to maintaining a balance between stocks and safer investments like bonds, something financial experts tend to suggest.) Asking these kinds of questions, and keeping an eye on the big picture, can help you stay aligned with your investing goals.
One way to invest in Zoom and diversify at the same time might be to buy an index fund or exchange-traded fund. Index funds and ETFs track a market index and allow you to hold stock in hundreds of different companies within one fund. And there are a number of funds with Zoom among their holdings.
» View our list: The best-performing stocks
3. Open a brokerage account
To buy Zoom stock, you’re going to need a brokerage account. (New to this? See how to open a brokerage account.) In short, you’ll want to look for a broker that has a low account minimum, no trade commissions and a user-friendly trading platform.
4. Decide how much to invest in Zoom stock
Research and a sense of your overall portfolio can help you decide how much money to invest in Zoom. So, too, might your opinion on how long people will continue to work and dial in from home. But there's more to consider.
Look at your overall financial situation and ask:
What do I need in the short term? When the goal is to grow money over time, the stock market has a solid track record. But it's not a place to protect your short-term savings. And before investing, you might want to make sure you have cash set aside for an emergency. Financial experts often suggest having three to six months' worth of living expenses at hand.
What's my plan for continued investing? Making regular investments over time, known as dollar-cost averaging, helps keep you from buying into the market when prices are high. Remember, you can always buy more shares later.
See our guide on how to buy stocks for more details, including a look at various order types you can place.