Should You Buy Snap Stock on the Dip? Snap (SNAP) shares have plummeted more than 78% year-to-date following the company's disappointing second-quarter earnings results. However, given the company's diverse product and service portfolio, would it be worth buying...

By Pragya Pandey

This story originally appeared on StockNews

shutterstock.com - StockNews

Snap (SNAP) shares have plummeted more than 78% year-to-date following the company's disappointing second-quarter earnings results. However, given the company's diverse product and service portfolio, would it be worth buying the stock at the current price level? Let's find out.

Snap Inc. (SNAP) is a camera company. Snapchat, the company's flagship product, is a camera app that allows users to interact visually with friends and family via brief movies and photographs known as Snaps. The firm has roughly 319 million daily active users.

The company's shares have declined 86.8% over the past year and 78.9% year-to-date to close its last trading session at $9.88. In addition, the stock is currently trading 88.1% below its 52-week high of $83.34, which it hit on September 24, 2021.

On July 22, shares of the social media firm fell 39.1% in response to the company's disappointing second-quarter earnings. Furthermore, Snap did not issue third-quarter guidance, citing an uncertain operating environment.

High inflation, increasing interest rates, and geopolitical concerns have reduced company spending capacity and dampened demand for SNAP's online marketing platform. Also, Apple's modifications to privacy policies have greatly hampered its ability to target advertisements. Furthermore, increased competition from competitors like TikTok has exacerbated the company's poor performance.

Here's what could shape SNAP's performance in the near term:

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 164.67kx, significantly higher than the industry average of 17.99x. Also, its forward Price/Sales of 3.57x is 162.4% higher than the industry average of 1.36x. Moreover, SNAP's forward Price/Cash Flow of 255.03x is 2734.42% higher than the industry average of 9x.

Inadequate Financials

SNAP's revenue increased 13% year-over-year to $1.11 billion for the second quarter ended June 30, 2022. Its operating loss grew 108% from the year-ago value to $400.94 million.

The company's net loss increased 178% from the prior-year quarter to $422.07 million. Its non-GAAP loss per share amounted to $0.02. In addition, its adjusted EBITDA declined 94% year-over-year to $7.19 million.

Negative Profit Margins

SNAP's trailing-12-month CAPEX/Sales of 1.96% is 52.5% lower than the industry average of 4.1%. Also, its trailing-12-month ROA, ROC, and ROE of 9.5%, 8.2%, and 26.2%, compare to its respective industry averages. Moreover, its trailing-12-month negative EBITDA margin of 15.3% compares to its industry average of 18.6%.

POWR Ratings Reflect Bleak Outlook

SNAP has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SNAP has an F for Stability and a D for Growth and Quality. The stock beta of 1.19 is consistent with the Stability grade. In addition, poor profitability and inadequate financials are in sync with the Growth and Quality grade.

Of the 64 stocks in the F-rated Internet industry, SNAP is ranked #59.

Beyond what I've stated above, you can view SNAP ratings for Value, Momentum, and Sentiment here.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $14.21 and $34.62, respectively, indicating a bearish sentiment. Moreover, its shares could continue retreating due to the current macroeconomic environment. So, given that the stock looks overvalued at the current price level, we think it is best avoided now.

How Does Snap Inc. (SNAP) Stack Up Against its Peers?

While SNAP has an overall D rating, one might want to consider its industry peers trivago N.V. (TRVG), Yelp Inc. (YELP), and Expedia Group Inc. (EXPE), which have an overall B (Buy) rating.


SNAP shares fell $0.05 (-0.51%) in premarket trading Monday. Year-to-date, SNAP has declined -79.06%, versus a -12.94% rise in the benchmark S&P 500 index during the same period.



About the Author: Pragya Pandey


Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...

The post Should You Buy Snap Stock on the Dip? appeared first on StockNews.com

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Devices

The Last Pen You'll Ever Have to Buy — Never Run Out of Ink Again With the ForeverPen

The world's smallest inkless pen is durable, portable, and built to last.

Leadership

The End of Bureaucracy — How Leadership Must Evolve in the Age of Artificial Intelligence

What if bureaucracy, the very system designed to maintain order, is now the greatest obstacle to progress?

Devices

Save 45% on an iPad Air With This Holiday Sale

You got gifts for everyone else—now it's time to treat yourself.

Business Ideas

Is Your Business Healthy? Why Every Entrepreneur Needs To Do These 3 Checkups Every Year

You can't plan for the new year until you complete these checkups.