Skillz Stock Is Best Left to Risk-Tolerant Investors

Sometimes a beaten-down stock starts looking so bad it looks good. That’s the situation that I see emerging with Skillz (NYSE:SKLZ) stock. Skillz went public via a special purpose acquisition company (SPAC) just as the SPAC frenzy was heating up. SKLZ stock debuted at $17.89 on Dec. 17, closed that day 27% higher and rode that wave all the way to above $41 in early February

A row of people wearing matching outfits and headsets play a video game together in a room with blue lighting.
Source: NYCStock / Shutterstock.com

But this is 2021, so you know the story doesn’t stop there. And sure enough, SKLZ stock has been on an almost completely uninterrupted path lower. Today, it’s below the psychologically important $10 mark with short interest at 23.04%.

But this is where I see an opportunity for risk-tolerant investors. The stock has been consolidating (more or less) for the past two months. And right now, it looks like it has strong support. Simply put, I believe investors have (more or less) found a floor. The question is how much upside does SKLZ stock have? 

Don’t Trade SKLZ Stock on the News Cycle 

SKLZ stock got a nice bump on Sept. 23 following the release of a new game . It was the company’s initial foray into the first-person shooter (FPS) genre that is very popular with gamers. But the stock has given up most of those gains in what appears to be a sell-the-news event.

If you’re a speculative investor looking to hold onto SKLZ stock for a little bit, you’ll have to show some commitment. There will be many more of these events taking place before the company is ready to deliver on its promise.

One attribute that makes Skillz different from many other SPAC stocks is that the company is already generating revenue. And it was doing so even before it went public. And the company’s revenue in the last quarter was 52% higher than the same quarter the prior year. But that’s only one part of the story.

Another compelling thing to note about the company is that it has had 22 consecutive quarters of revenue growth.

What’s contributing to this revenue is the company’s business model in which game developers and players come together in a marketplace. Skillz also provides a platform that is specifically geared toward competitive gameplay. Players pay a fee to compete for cash prizes.

That may not excite every investor, but it’s obviously resonating with the company’s target audience. Monthly active users (MAUs) who paid to play showed a year-over-year increase of 53% in the last quarter.

And the company was quick to note that only 10% of that revenue growth came from outside North America. The significance of which is that the company said it was still on track to launch its platform in India before the end of 2021.

Skillz Stock Still Requires Patience 

I first wrote about Skillz stock over a month ago. My message then, and now, is the same. This is a highly speculative stock. However, it’s not a stock without upside.

Institutions own almost 58% of the shares. Data collected by TipRanks shows five analysts with a $19 average 12-month price target. That’s after two analysts lowered their price targets after the company’s most recent earnings report.

And if that sounds too good to be true, consider the opinion of InvestorPlace contributor Mark Hake who believes that SKLZ stock could have a fair price of $14.65 in the next 12 months. In a market that looks like it could finally be correcting, a 36% gain is nothing to dismiss out of hand.

However, as our Thomas Niel points out, there is a possibility that the stock could find itself under pressure if the market corrects or if the company doesn’t continue to deliver revenue growth.

But you should expect volatility. It wasn’t that long ago that SKLZ stock was a small-cap stock. And despite its current market cap of over $4 billion dollars, it still has that feel. Investors should plan accordingly. 

On the date of publication, Chris Markoch 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.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019. 


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