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Why Zendesk Stock Gained 17% in February

What happened

Zendesk (NYSE: ZEN) stock climbed 17% in February, according to data from S&P Global Market Intelligence. The software company's shares advanced early in the month in the wake of better-than-expected fourth-quarter earnings and went on to hit a new high.

ZEN data by YCharts.

Zendesk reported Q4 results on Feb. 5, delivering another quarter of strong momentum. Sales for the period soared 41% year over year to $172.2 million, and non-GAAP net income came in at $11.2 million, or $0.10 per share, topping the consensus expectation for earnings per share of $0.03. Free cash flow for the period also rose 10.8% to $13.3 million.

Image source: Getty Images.

So what

The last year has proven somewhat volatile for growth-dependent technology stocks, but Zendesk shares have climbed roughly 70% thanks to the business's record sales and earnings performance. The company closed out 2018 with a whopping 73,600 customer accounts, and it's pushing into customer relationship management (CRM) software and working on other new products for the Zendesk suite in a bid to expand its horizons even further.

Now what

Like many relatively young cloud software companies, Zendesk is prioritizing expanding its customer base over near-term earnings. The company is valued at hundreds of times this year's expected earnings and roughly 10.7 times this year's expected sales, so there's a lot of growth already priced into the stock.

That said, Zendesk has a large and still growing customer base, and it has the potential to deliver strong earnings and returns as it continues to scale its business, increases its average revenue per customer, and finds opportunities to leverage its customer base and software expertise to branch into new product offerings.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zendesk. The Motley Fool has a disclosure policy.

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