Zoom stock downgraded by JPMorgan after 505% rally on concerns a COVID-19 vaccine could dent further upside

• Zoom Video's potential upside is fully priced into the stock and mass COVID-19 vaccinations could put a dent in the company's subscriber business, according to a note from JPMorgan.
• JPMorgan downgraded Zoom to Neutral from Buy in a note on Wednesday, though it did raise its price target on the video communications company to $450 from $425.
• JPMorgan notes that the highest multiple stocks in 2009 underperformed in 2010, and the environment is ripe for a similar setup into next year.
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The upside potential in Zoom Video is likely limited going forward as mass vaccinations for the COVID-19 virus could put a dent in the firm's business, according to a Wednesday note from JPMorgan.

The bank downgraded Zoom Video to Neutral from Buy and raised its price target to $450 from $425, representing potential upside of 9% from Tuesday's close.

Shares of Zoom Video have rallied 505% year-to-date as of Tuesday's close as social distancing and economic lockdowns caused rapid growth in the use of Zoom's communication software.

According to JPMorgan, the environment is ripe for a similar setup seen a decade ago, when the highest multiple stocks at the end of 2009 underperformed in the following year.

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"If the current vaccines prove effective in manufacturing rates hitting scale, we believe the economic expansion starting in the June quarter could replicate that same environment from 2010," JPMorgan said.

Zoom Video's trailing twelve month price to earnings multiple was 286x as of Tuesday's close, and its price to sales ratio was 60x, according to data from YahooFinance.

"At this point we believe that the revenue multiple fully reflects the upside potential," JPMorgan said.

On top of the high valuation, JPMorgan believes Zoom's under 10-employee segment of its business could be hit as COVID-19 vaccinations "allow for more in-person interaction moving forward," the note said.