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As a cloud-based communication and collaboration products and services provider, RingCentral (RNG) offers incredible relevancies for the workplace environment of the new normal. Of course, with millions of white-collar workers still operating remotely, RNG stock appears to have a bright future. As a result, the bulls are enthusiastic about it from a technical and fundamental perspective.
Regarding the former category, the Barchart Technical Opinion indicator rates RNG stock a 40% buy, with an average short-term outlook of shares maintaining their current direction. To be fair, RNG stock hasn’t looked great. In the trailing one-year period, the security stumbled more than 31%. However, since the start of the year, RNG gained 1.56%. Over the past five sessions, it’s up more than 5%.
Put another way, RingCentral could have finally printed a bottom. If so, it’s possible that shares may rise higher from here, thus facilitating a compelling discount.
Indeed, on a fundamental note, the market prices RNG stock at a forward multiple of 10.56. That’s significantly undervalued compared to the software (system and application) sector’s average forward multiple of 56.51. Even compared to the software (entertainment) sector – which RingCentral does not belong in – the forward multiple clocks in at 21.29.
No matter how you parse out the data, RNG stock appears discounted. Still, the question remains: is this a legitimate discount or a possible value trap?
Options Traders Appear to Favor Upside for RNG Stock
One advantage of looking at Barchart’s screener for unusual stock options volume is that it may provide an early warning signal about what the smart money may be anticipating. For example, extraordinary volume might be a technical signal that traders anticipate a significant swing in price and/or volatility.
Notably, then, RNG stock represented a key highlight for the aforementioned screener, with total volume reaching 29,257 against an open interest reading of 78,685. Further, the Tuesday session volume and the trailing one-month average metric came out to 794.16%. Call volume hit 28,648 contracts versus put volume of 609.
On paper, this pairing yielded a put/call volume ratio of 0.02, dramatically favoring the bulls. Per Barchart’s price overview of RNG stock, the investment research platform lists the put/call open interest ratio at 0.42. While greater than the volume print, the latter ratio still signifies strong bullish sentiment.
For full disclosure, options flow data from Fintel indicated a contest session on July 11, with call purchases clashing against sold calls. However, Fintel also shows that implied volatility has been steadily rising since June 29. Rising implied volatility generally indicates more buying interest for underlying options contracts. Therefore, the trend corroborates with increasing optimism in the open market.
Given that options traders are signaling upside for RNG stock, shouldn’t retail investors dive in? After all, RingCentral also appears fundamentally undervalued. However, I have big questions about the value proposition.
RingCentral’s Discount Depends on a Big “If”
To recap, the market prices RNG stock at a forward multiple of 10.56. Stacked against its core industry, RingCentral offers a massive discount. However, the forward multiple is obviously an earnings projection. That’s a big “if” because the discount really depends on whether RingCentral meets its profitability target. If not, RNG raises value trap concerns.
First, let’s address the obvious. If you try to calculate the trailing earnings multiple of RNG stock, you get N/A or not applicable because the underlying company suffers net losses. However, RingCentral might be a solid discount if it becomes profitable as forecasted.
It’s on its way, with the enterprise’s first quarter of 2023 earnings report showing revenue of $534 million, up over 14% from the prior year. Also, its net loss in the most recent quarter came in at $54 million, sharply mitigating the red ink of $151 million one year ago. A couple more outstanding quarters and yes, RNG stock could make speculators smile.
However, the problem is that the broader work-from-home directive might not last indefinitely as many workers would like to believe. In the post-pandemic professional landscape, time theft – essentially collecting a paycheck to conduct non-work-related endeavors – is imposing an economic impact.
Understandably, remote workers scream till their faces turn blue that they’re much more productive at home than at work. Let’s just assume that’s true. Even so, employers prior to the pandemic have reported productivity drains due to wasted time or outright fraudulent activities. If these drains outweigh the positives, employers will have no choice but to impose a once-size-fits-all return-to-office mandate.
Legally speaking it’s much better to bring all workers back rather than some; otherwise, employers run the risk of incurring discrimination lawsuits up the wazoo. And with that, it’s at least possible RingCentral’s total addressable market may be smaller than some investors think it is. Therefore, it’s not out of the question that RNG stock may be a value trap.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
