Skillz Stock Needs Time to Gather Investor Good Will

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Skillz (NYSE:SKLZ) stock has a small income statement but draws attention on Wall Street.

Image of two boys playing video games
Source: Shutterstock

SKLZ stock has had a violent history already in its short public life. Last year, it broke out 225% to peak in February. What followed was a tremendous destruction of market cap. Those who bought the shares at their highs lost 70% of their investment by late April. But in the year of the Reddit Ape, SKLZ bounced 75% and lost as much four times in two months.

The moral of the story is to expect anything can happen with this company stock.

SKLZ Stock Indicator

Of late, the price action has tightened into a fine point. This is an indication that there will be another violent move coming.

If the markets in general hold up, odds are that SKLZ will pop. Being long the stock could be very rewarding. The downside risk in comparison is minimal. For the last eight months, the bulls have defended $13 per share very well. This is likely to continue to be a base as long as the bulls are in charge on Wall Street.

Moreover, if the buyers push past $16 per share they can launch a 50% recovery rally from there.

Skillz (SKLZ) Stock Chart Showing Potential Base
Source: Charts by TradingView

The company fundamentals are simple. They provide a popular service in the gaming industry. Demand on that is not going away soon. The runway is long enough for them to continue gathering momentum. Therefore, management has the opportunity to build a healthy business.

Skillz Needs Time to Earn Respect

Meanwhile, there aren’t many traditional fundamental metrics to judge it traditionally. It is not cheap, but its 33 price-to sales- is not too unreasonable.

For absolute references Tesla (NASDAQ:TSLA) is 18 and Roblox (NYSE:RBLX) is 39. Even then, it being “cheap” is not a prerequisite. This is a growth stock, so sales metrics are the important ones. Profitability performance will come later.

Value is not a detriment at this stage. As management delivers revenue growth, the metrics will fall in line.

The market cap is still 60% above its IPO valuation, so it is not a disappointment by any means.

Nevertheless, it has to deal with a slew of litigation headlines as if they had misled investors. I bet it is more the case of unrealistic expectations than bad results. There are no indications that they are slowing down.

Bottom Line

Therefore, my assumption today would be to continue holding the stock. This could also be a fast trade for new investors who want to try an earnings swing trade higher.

I do have concerns stemming from extrinsic factors. Politicians are playing hot potato with headlines again. Also the U.S. economy could stall a bit as stimulus packages abate.

Stock markets usually price things out months ahead of time. If they get a whiff of slowing in consumer spending they will sell stocks in advance. We have been spending like fools as a nation accounting for more than 2/3 of the GDP. This is an important caveat for owning equities regardless of quality.

I am a fan of SKLZ stock but not blindly so. I have no qualms writing when it is time to sit it out.

At this stage of the price action, I would be more optimistic than not. SPAC stocks have lost much of their mojo among investors. But they are not all dying companies. Many have thriving businesses with long runways. This one merely needs time to prove itself to investors. Management will have that opportunity this week when they report earnings tomorrow. The opportunity came from the team that brought us DraftKings (NASDAQ:DKNG), so it has street cred already.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2021/08/skillz-sklz-stock-needs-time-to-gather-investor-kudos-points/.

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