Q: ZDC has been drifting lower the past month. Is the fact they raised money a contributing factor? Is the story still solid for the future? What do you see for ZDC over the next 6-12 months? Is this an opportunity to fill out a position?
5i Research Answer:
It has been drifting lower since its equity raise, but it also ran up substantially over the past several months. This price action is fairly typical for growth stocks, but also ZDC in particular. We can see a similar consolidation from November 2024 to April 2025. We believe the story is still solid, but it trades at a very expensive valuation (147X forward earnings) and margins are thin, but slowly rising. It does not generate positive free cash flows, but forward sales and earnings growth is expected to be around 80% for the next couple of years. We might expect a bit more consolidation here, but we would be comfortable slowly averaging in, while ideally looking for some support to be found and a new uptrend to form.