Dropbox delivered a strong Q4. It also authorized a stock repurchasing program. DBX must recover $21 to have a shot at starting a bull run.
Dropbox’s stock (NASDAQ: DBX) has been languishing in bear territory since August 2018. From that point, DBX lost nearly half of its value in a little over a year. The name plunged to an all-time low of $16.08 in December.
It appears that the San Francisco-based company is finally turning a corner. Dropbox recently made a major acquisition and announced a strong fiscal fourth quarter. DBX surged in after-hours trading, and it looks like the stock is just getting started.
Dropbox is showing it’s prepared to do the heavy lifting to push its stock out of bear territory.
First, the file-hosting company crushed Wall Street expectations for the quarter ending December 2019. Analysts projected earnings per share (EPS) of 14 cents on sales of $443.41 million. Dropbox delivered an EPS of 16 cents on $446 million in sales.
While those numbers can pique investors’ interest, it’s not enough to spark a bull market. Compared to its Nasdaq peers, DBX is a laggard.
To get out of bear country, the company needed to do something drastic. Dropbox’s announcement of a $600 million buyback program falls under that category.
A company buying back 30 million of its own shares is a good sign that the bottom might be in. Investors are responding positively. DBX rose 10% in after-hours trading.
In the next 12 months, analysts see Dropbox trading at $30 per share. That’s an increase of more than 60%.
Jason Harris of StockHunterTrading.com believes that the file-hosting company is positioning its stock for a bull rally. He told CCN.com,
DBX had good earnings and guidance. Most analysts’ price targets are currently around mid-$30 so the company definitely put together a solid bullish case tonight.
The trader also had some technical notes:
$18 seems to be a solid base for now. Over $21, it would be reclaiming the 200 moving average which is a technical bull sign for investors. Considering every other recent IPO growth stock has made a big run, DBX is definitely lagging the sector and has the setup to make a run.
Ian McMillan, analyst at Adaptiv, shares the technical perspective of Harris. When asked if he thinks the stock is bottoming out, he said,
Yes, I do, if it can get above $21 and hold.
It appears that the magic number for Dropbox is $21. Conquer that and it becomes possible for the stock to hit the 12-month target of $30 per share.
While the prospects of DBX are looking up, the reality is that the stock is still mighty bearish. It’s very possible that the stock’s recent surge is just a dead-cat bounce or a bearish retracement. In other words, the downtrend may continue in spite of the huge buyback program.
Take note, many investors are still underwater as the stock has been slowly bleeding for over a year. More importantly, the $600 million stock repurchase represents only two days of DBX’s trading volume, so it wouldn’t be surprising if the rally is short-lived.
Dropbox may be hell-bent on starting a strong bull rally. Unless the stock recovers $21, their efforts might go to waste.
The above should not be considered trading advice from CCN.com. The writer does not own Dropbox (DBX) shares.
This article was edited by Sam Bourgi.