Why Zoom Stock Zoomed Today

Zoom Communications (NASDAQ: ZM), the videoconferencing stock that won so much success during the pandemic that it became a verb, is soaring even higher in Tuesday trading. Shares are up 12.7% through 11:40 a.m. ET after beating earnings last night.

Heading into Zoom's report, analysts forecast Zoom to earn $1.44 per share on quarterly sales of $1.21 billion. Zoom actually did $1.23 billion in sales, and its earnings were $1.52 per share.

Zoom Q3 earnings

You might be a bit surprised to learn that despite the beat, Zoom actually grew its sales barely 4% year over year in Q3 -- but the earnings news will surprise you even more.

Zoom transformed that modest rise in sales into an astounding 204% increase in earnings per share. Even better than the "$1.52" noted above (which, it turns out, was a pro forma number), Zoom reported earnings as calculated according to generally accepted accounting principles (GAAP) of $2.01 per share.

Management says free cash flow was up as well -- maybe not up triple -- but still, the company generated $629.3 million in cash profit for the quarter, up 30% year over year.

Is Zoom stock a buy?

On guidance, Zoom says its full-year fiscal 2026 sales are trending above $4.85 billion, and pro forma profits should land between $5.95 and $5.97 per share. Management didn't provide GAAP guidance, but it did indicate that free cash flow should be approximately $1.87 billion.

Weighed against Zoom's $26.8 billion market capitalization, this works out to a price-to-free cash flow ratio of just 14.3. And relative to the 30% FCF growth Zoom just reported, I'd say that makes Zoom stock cheap enough to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Communications. The Motley Fool has a disclosure policy.