Snap Inc Stock Is Still Worth Fighting for in the Long Run

In the era where social media occupies a large part of every day life, “trending” has become an important term. The trend of spending time socializing in the ether is gaining speed. Last year Meta Platforms (NASDAQ:FB) announced its commitment to the metaverse. The next step in social media will blur the lines between spending time online and living there. Snap (NYSE:SNAP) is likely to be an early mover into this new digital realm too. As such, SNAP stock will benefit in the long term from the deployment of a metaverse.

Snapchat (SNAP) application on android cell smartphone. Snapchat is a mobile messaging application used to share photos, videos, text, and drawings.
Source: dennizn / Shutterstock.com

But short term, all stocks must survive the recent jitters on Wall Street. The reasons for the worries come from three major sources. First, the struggle in the Ukraine is not abating. Secondly, the Federal Reserve has announced its intent to break the economic momentum. And most recently, there is a resurgence of lock downs in China thanks to the Covid-19 pandemic.

These are potentially serious stock market killers if they spiral out of control.

However, the last two weeks have been phenomenally bullish. Very few experts saw this rebound rally in the indices coming. For a while all the prognostications were about how deep and how long this correction might last. All the while the fundamentals of companies have been improving.

SNAP stock, for example, has compelling bullish financial metrics to back it up. Snap Inc’s management grew revenues five times in five years. The company even cut the net loss by $3 billion, down from $3.5 billion in 2017. Moreover, it now generates $340 million in cash from operations.

The selloff that started last fall was brutal but it helped eliminate a lot of froth from SNAP shares. From high-to-low, SNAP stock lost 66% of its value. It has bounced once already and this is its second effort at a comeback.

Luckily, much of the calamity in the equity price was the result of the pandemic rally. It was wrong for it to explode that fast that far on questionable conditions in 2020. (After the initial pandemic lock down shock, SNAP embarked on a 190% rally). With all of that in mind, here’s a closer look at how to approach investing (or trading) in SNAP today.

SNAP Stock Is in Stronger Hands Now

Snap Stock Chart Showing Strong Support Below
Source: Charts by TradingView

By now, all that hype has dissipated and investors are back to base. This year, investors tested the floor twice and under extreme conditions. The hardest of which was the negative earnings reaction that took the stock down to $24 per share. Since then, SNAP found buyers who are willing to battle harsh sellers, so I am confident in the support that lies beneath.

Even though there is overall risk from a market-wide crash, SNAP stock should find less downside risk. That’s because it has already been through this three times this year. The owners now have much stronger hands than those hanging on to all-time highs in the indices. I bet that it’s ready to outperform in case things sour on the Street. Conversely, it’s also ready to recover some glory if the markets remain stable.

There will be resistance levels above (especially going into $43 per share). But every area of difficulty will become an opportunity to catalyze the rally further. The strong fundamental metrics are a testament to the competence of the team, so Snap Inc management deserves credit. If the macroeconomic and geopolitical scenarios improve, this stock is going higher this year.

Ultimately, I would expect it to reach the mid $50’s but not in a straight shot. Therefore, investors need to have a bit of patience and discipline. It would be wise to enter positions in tranches. In the short term, headlines can elicit emotional responses. Wall Street investors have become too dependent on news for trading. Therefore, we must give them room to do so without causing damage to our own investments.

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.


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