Despite a solid earnings release, Wall Street has nevertheless opted for putting on blinders in shares of Snap (NYSE:SNAP). The better news? For investors the decision to invest against today’s consensus is now an easy one both off and on the SNAP stock price chart. Let me explain.
Last week’s earnings confessional in SNAP stock proved a bittersweet report for shareholders. On the one hand, the social media company behind the popular Snapchat platform delivered an across-the-board win. On the other, shares of Snapchat stock finished lower by nearly 6% in the reports immediate aftermath while also hitting four-month lows.
So, what happened?
By the numbers, Snap posted a profit beat of one penny on a per share loss of 4 cents. Revenues also topped Street estimates with sales of $446 million versus forecasts of $435.1 million. Daily active users of 210 million and revenue per user of $2.12 also compared favorably to expectations of 207 million and $2.10 respectively.
On the call, management’s message was equally supportive with its firm but measured vision for continued growth and clear path to profitability for SNAP stock. But a seemingly misunderstood reduction in the company’s sales guidance to growth of 41% on revenues of $540 million to $560 million tied to this year’s shorter and important holiday season versus Street views of $555.4 million became the catalyst for Grinch-like profit-taking.
SNAP Stock Price Weekly Chart
If misery loves company, SNAP shareholders are far from alone this earnings season. Peer Twitter (NYSE:TWTR) saw its stock trim its year-to-date gain by an even more menacing 21%. And yesterday, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and recent IPO Beyond Meat (NASDAQ:BYND) saw some pressure. But a problematic miss in TWTR stock, light profits in for GOOGL and an expiring lockup period in BYND stock are also more obvious reasons for investors to be a bit more cautious. Fortunately, that’s not the case in Snap shares.
Aside from Snapchat stock’s still-intact bullish narrative, SNAP is in a technically solid position to be bought. From its late-July peak, SNAP stock has corrected by a healthy and very common 30%. For a growth stock of Snap’s caliber that’s not a green light, but certainly puts the name on the radar for purchase.
What makes the correction in SNAP more compelling is the way in which the price action has developed on the weekly chart. On this time frame, shares have worked their way into an oversold and bullishly divergent stochastics setup. Along with a fully-formed doji candlestick which just breached the 38% retracement level, the decision to buy becomes an easy choice.
Positioning in Snapchat Stock
Given the technical picture and that doji formations are associated with indecision on the part of investors, I’d recommend buying SNAP stock above $15.13. This entry is 10 cents above the high of the candlestick and waits for confirmation that a low is in place.
To minimize risk, I’d consider using a stop-loss beneath $13.75. That amounts to exposure of 9% in Snapchat stock and exits the position if the opening price of the doji candle is breached. By comparison, using a more traditional stop tied to the pattern low of $12.71 opens up risk to 16%. Reduced sizing could help with maintaining the looser stop-loss. I get that. However, in lieu of what’s been discussed off and on the price chart, this blended exit looks like sufficient leeway for a risk-adjusted purchase of SNAP.
Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and its derivatives but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
