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Is the current Snap Inc stock price rally justified?


Shares in NYSE-listed Snap Inc NYSE:SNAP have been gaining ground recently, up from just under seven dollars in early May, to close at $10.82 on Wall Street Friday. Snap stock is still well down on its 52 week high (over 25% in fact). But it is probing the highs established more recently, in February and March.

The US camera and social media company that owns Snapchat is exhibiting excellent technical factors across the board, supportive of further rises, with even the stochastic oscillator indicating that shares have been oversold. Overall news flow from the company has been relatively so-so of late, although we saw last month the announcement that Skai has extended its partnership and integration with Snap, which looks like an indicator of further acceptance of Snapchat’s value as a social media platform.

Snapchat’s last set of results, published in late April, showed nothing spectacular when compared to its peers in the market.  The company obviously still lags the likes of Alphabet NASDAQ:GOOGL and Meta Platforms NASDAQ:META when it comes to raw balance sheet metrics, and it can’t compete with Baidu [NasdaqGS:BIDU] in the cash flow stakes. But overall it seems to be holding its own amongst the big social media giants.

Snap looks like it will be able to maintain its strong balance sheet metrics and momentum going forward, according to analysis by artificial intelligence specialist BridgeWise. Its balance sheet performance looks quite interesting when measured against close peers like Pinterest, and suggests the stock price does indeed still have room to grow. Look to its positive trend line in cash and cash equivalents especially, up 11% since the company’s last report.

Snap is still something of an underperformer when it comes to equity and this could blunt some of its potential upside, at least until it files its next set of numbers. Assets change and equity / intangibles are definitely holding it back, and BridgeWise scored Snap 45/100 in both these areas. This compares with a peers average of 72-76. Alphabet, for example, scores an 88/100 on Equity/Intangibles, with Meta Platforms at a punchy 92/100.

Healthy income statement

Snap’s income statement looks healthier, however, and here it does seem to be measuring up better against the other big boys in the tech sector. Revenue momentum was graded at 85/100 by BridgeWise, against a 69 for Meta Platforms and 57 for Baidu. Snap is doing an excellent job of managing its revenue efficiency, which is important in this sector. Management is successfully encouraging growth while maintaining good ROE and ROA metrics relative to the company’s peers.

Snap’s EBITDA metrics highlight a still concerning overall financial situation which is why the stock price has been crimped in recent weeks. This one is closely watched by fund managers and analysts and management may need to address this in the near term. This is certainly hurting Snap’s income statement.

Snap still has exciting cash flow numbers, however, which are regarded as industry-leading and should reinforce broader positive momentum for the stock going forward. The free cash flow situation also looks very impressive, although asset turnover, a critical cash flow metric, is still a bit weak.

BridgeWise has Snap Inc a ‘Hold’ at the moment, based on these fundamentals. Investors in the sector may also want to take a closer look at IAC NASDAQ:IAC which we consider a close peer of Snap, but with superior metrics.

If you are interested in using some of the same AI tools as we use in our stock analysis, you can now subscribe to these via The Armchair Trader for the special offer price of £10.00 per month. There’s a 7 day free trial.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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