• Dropbox is a hot tech stock in its first year as a public company.
  • Yet, DBX just tumbled after a corporate shakeup.
  • Wall Street’s best experts are still bullish; here’s why.

Data storage and software giant Dropbox Inc (NASDAQ:DBX) spent 11 years not under the radar- but as a private company. Back in 2007, Dropbox was just an idea brewing in MIT grad Drew Houston’s mind. Soon, Houston’s MIT peer Arash Ferdowski hopped on board, and the brainchild burst onto the cloud-based scene.

Fast forward to 2016: the consumer tech player landed on CNBC’s top 50 list of industry disruptors to watch. By March 2018, Dropbox’s IPO had tech investors transfixed- one of the most buzzed-about offerings in years. The company was minted as one of the “unicorns,” circling the likes of Uber and Spotify (NYSE:SPOT)- privately held start-ups worth over $1 billion. It’s a rare victory for start-ups to land in the billions, and it’s one of the reasons this unicorn has bulls flocking.

With a $750 million IPO, Dropbox stock flew over 40% in opening trading hours. Present-day, the company towers at a market cap over $12.4 billion. Shares have since jumped a solid 9%.

That said, this Friday, Dropbox stock got a corporate shock: its chief operating officer Dennis Woodside is leaving next month. Woodside had been part of Dropbox’s well-oiled machine for three years, including the IPO.

Dropbox CEO Drew Houston said, "He's helped transform Dropbox into a publicly-traded company with over $1 billion in annual revenue and 12 offices around the world." Investors reacted by sending shares on an almost 10% nosedive.

We looked into TipRanks’ Daily Analyst Ratings tool and noticed Dropbox had attracted some of the latest buy recommendations on Wall Street. The stock popped up twice, even earning a new bull from one of the best performing analysts. Let’s explore why experts like the odds on this ‘unicorn.’

Top Analysts Are Even More Bullish Now

RBC Capital’s Mark Mahaney (Profile & Recommendations) just upgraded Dropbox from Sector Perform to Outperform, and bumped up his price target $2. The analyst believes Dropbox could hit $36 (16% upside potential).

The analyst is not surprised to see Woodside resign, as “after four years in the role likely needed to scratch his entrepreneurial itch.”

Here’s why Mahaney is not only unfazed by the turnover, he rather has become a new Dropbox bull. Woodside’s exit is overshadowing a second quarter print that proved “strong.” Mahaney argues that the company dished “top- and bottom-line upside to RBC & Street estimates, with Q3 above the street's estimates for Revenue but below on EBIT. FCF margin came in at an impressive 30%."

Canaccord’s Richard Davis is another analyst who sees a big “overreaction” here on a killer tech investment. The analyst likewise has become more confident in his expectations, calling for shares to reach $38 (22% upside potential).

Worthy of note, not only is Davis a top analyst, he is the #1 analyst on the Street today. As far as this Wall Street-er is concerned, “fundamentals always eventually win out.” Until investors shake off the “spook,” Davis takes the crash in stride; after all, “we like stocks on sale.”

Keep in mind, “back in the real world of assessing actual fundamentals, Dropbox delivered everything we had hoped for with a particularly nice beat on the FCF line,” argues the bull, who says he “confidently” maintains a buy rating here.

Davis adds, “Management turnover is normal, and if it is not too high, is healthy for a company because it prevents ossification. For perspective, there are over 100 Salesforce alumni who are CEO’s of software companies and last time we checked, Salesforce is doing pretty well.”

Take the “pullback” as a “gift,” writes Davis, who sees a stock that has 1) enticing fundamentals 2) poses compelling “sale” valuation.

Take Advantage of the Entry Opportunity

JMP Securities analyst Greg McDowell (Profile & Recommendations) likewise joins the bullish camp in dialing up his price target. Before the second quarter print, McDowell expected DBX stock could leap to $35. Now, the analyst sets a price target at $37 (19% upside potential).

Not only did revenue to earnings to billings all deliver Street-wide beats for the second quarter, but Dropbox also showcased its “highest ARPU ever.” McDowell reiterated an Outperform rating fresh on the heels of DBX’s stellar second quarter results. The company also racked up more net pew paying users than anticipated. Accordingly, the analyst lifted his EPS expectations for 2018, 2019, and 2020.

Jefferies’ John Difucci also took well to the “strong” second quarter earnings show- notably the company’s second print as a public company. Accordingly, the analyst hiked his price target in Wall Street’s bullish parade, from $32 to $37.

Before the print, Difucci had joined the bulls at the start of the month on the back of attractive valuation- and “no material change” in fundamentals. The software model shines with potential for sustainability and is innovative in its space. Any weakness just carves a great bullish point for entry.

Following the print, this analyst just sees a company that unleashed 27% in sales growth. This momentum rides a wave of average revenue per user gains, “itself led by the expiry of grandfathering into the newer Teams Advanced plan, and to a lesser extent by paid user growth.”

Bigger Picture: Dropbox Is Still a Wall Street Darling

Any volatility seems to just make for a bullish field day here. Dropbox sentiment on Wall Street is soaring as confident as ever.

The ‘Strong Buy’ stock has five bulls in its corner, over the last three months- and not a bear in sight. Dropbox’s bullish camp just keeps growing. Rounding out consensus expectations, best performing analysts see the price target landing at $37.33. In other words, Wall Street’s experts call for 20% in upside potential for Dropbox. See DBX Price Target and Analyst Ratings Detail.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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