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IBD 50 Stocks To Watch: Dropbox Stock In Buy Zone As Cloud Company’s Profits Swell

Dropbox (DBX) shares rallied nearly 3% Wednesday at midday as the stock continued to behave well after finding support at its 10-week moving average. As Dropbox stock enters a new buy area, it was picked for IBD 50 Stocks to Watch.




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The developer of the cloud-based file-sharing platform pulled back to the 10-week line in the middle of July. It was a gentle descent from a nearly three-year high. Light volume indicated it was a normal readjustment following a 20% run from the May lows, and a 10% climb from the 28.43 buy point of a June 2 breakout.

A touch of the 10-week average at 29.45 created a buy zone from that price to 32.39, the top of the buy range. Dropbox stock traded around 31.50 at midday Wednesday. An up-down volume ratio above 2.0 suggests institutional investors are buying the dip.

While the chart behavior is bullish, next week’s earnings report poses a risk. Dropbox will announce second-quarter results after the market close on Aug. 5. Investors would need to either accept the risk of an earnings-related drop, or perhaps use options to bet on Dropbox stock.

Analysts expect earnings of 33 cents a share, an increase of 50%, according to FactSet. The consensus sales estimate is $524 million, up 12%. The number of paid users is expected to rise 7% to 16.04 million, while 289,000 net adds are estimated. Average revenue per user is pegged at $131.93, according to FactSet.

The fourth quarter of 2019 saw Dropbox start a stretch of much larger quarterly earnings gains. EPS rose 60%, 70%, 120% 100% and 75%. However. quarterly sales growth ran at a slower pace: 19%, 18%, 16%, 14% and 13%.

Dropbox Stock As Work-From-Home Play

Dropbox became more popular as a business tool when Covid-19 lockdowns started the work-from-home movement. Many workers started using the company’s HelloSign e-signatures for the first time during lockdowns. The company is also investing heavily in product enhancements, sometimes through acquisitions.

In the first quarter, Dropbox completed the acquisition of DocSend, which enables companies to share documents and get engagement analytics. The combination of Dropbox, HelloSign, and DocSend provides users end-to-end document management.

At least one report said Amazon.com (AMZN) has been in talks with Dropbox and other companies on developing a bundle of business apps. Amazon discussed the plan also with, Slack Technologies (WORK), Smartsheet (SMAR) and others. The combination would be aimed to compete against Microsoft‘s (MSFT) work productivity products.

Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia

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