On Wednesday, Benchmark, a financial firm, adjusted its outlook on Ooma (NYSE:OOMA), a smart communications platform provider. The firm's analyst revised the price target downward to $15.00 from the previous $18.00 while still endorsing the stock with a Buy rating.
The revision is based on a recalibrated valuation method that aligns more closely with the S&P 400 index rather than the S&P 500.
The analyst's decision to lower the price target was influenced by the application of a normalized 16 times price-to-earnings (P/E) ratio, which is considered a more fitting measure for establishing an appropriate cost of equity in a discounted cash flow valuation that extends through 2030.
This is in contrast to the higher P/E multiples above 20 times that are currently associated with the larger cap stocks in the S&P 500 based on their 2024 earnings estimates.
In addition to the price target adjustment, Benchmark is also introducing new quarterly estimates for the fiscal year 2025, along with slight revisions to their annual estimates. Despite the adjustments, the firm's analyst remains optimistic about Ooma's prospects, particularly highlighting the potential of Ooma's AirDial product.
AirDial is aimed at replacing traditional copper phone lines, but its immediate adoption rate and subsequent revenue contribution have not met initial expectations, despite a significant total addressable market (TAM) for this technology.
The analyst's maintained Buy rating indicates a continued positive outlook on Ooma's shares, reflecting confidence in the company's long-term growth potential. Ooma's efforts in product innovation and market expansion are key factors that contribute to this optimistic perspective.
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