- Spotify (SPOT) shares have cratered relative to other large-cap tech leaders
- Overlooked growth, free cash flow (FCF) and SPOT stock price chart offer significant upside
- Investors should take advantage of Spotify’s bear market with this bullish strategy
Shares of Spotify (NYSE:SPOT) were up an outsized 5% in Tuesday’s session. SPOT stock benefited from ceasefire negotiations in Ukraine and welcome monthly consumer confidence data released earlier in the session.
But that’s about all the relative and absolute strength which SPOT stock investors can buoyantly whistle about. Streaming audio giant Spotify has proven a siren song that’s crashed portfolios.
On a myriad of factors such as a broader interest rate-driven rotation away from higher growth narratives, a prized but inflammatory Joe Rogan podcast or Spotify pulling the plug on its operations in Russia, shares remain 60% beneath last February’s all-time-high of $387.44.
Now it’s time to tune out the verbal rhetoric weighing on SPOT stock and focus on the positive catalysts, off and on the Spotify price chart, supporting a purchase today.
SPOT Stock’s Bullish Business Drivers
Would you like to buy a globally dominant brand whose business has more than doubled since going public? Probably?
And what if the company is poised to continue growing and you could purchase shares at a discount to when the stock first started trading?
There’s little doubt that should sound like music to the ears of investors. And with SPOT stock today, investors have the chance to do exactly that.
Additionally, SPOT stock is also finally monetizing its ad-supported user base like gangbusters led by its booming podcast business. What’s more, the platform is generating positive cash flow and on the verge of turning a profit inside the next twelve months.
But what about the Wall Street’s bearish rotation out of higher multiple growth stocks over the past fourteen months?
Today the argument holds less water with a lower price-to-sales multiple of 2.7. That’s less than half of streaming video giant Netflix’s (NASDAQ:NFLX) and a fraction of growth stocks like Snowflake (NYSE:SNOW) still fetching north of 50 times sales.
Others might worry about the Joe Rogan controversy and artists pulling their music from Spotify’s catalog in protest. But that’s not facing the music. Most celebrities and musicians aren’t Neil Young. They’re more like Cher or Miley, which makes for a good sound bite with no teeth.
What Matters on SPOT Stock’s Price Chart
Source: Charts by TradingView
With April just a couple days out shares of Spotify have put together a bullish monthly chart hammer. Great, right? Not so fast!
At the moment a reversal candlestick like Spotify’s hammer isn’t terribly unique given the broader market’s strong rebound from a corrective and bearish cycle this month.
Still and to give credit where credit is due, SPOT stock is one of the ten out of a dozen reversing nicely.
More special, SPOT does maintain a much more lengthy bear phase than most of its large-cap tech peers which reasonably sets the stage for a more powerful bullish cycle to follow.
Then there’s the severity of Spotify’s hammer which appears very favorable compared to the crowd. Uncommonly, the entirety of the monthly candlestick falls outside SPOT’s lower Bollinger Band. Now that’s oversold!
Lastly, a dragged through the mud monthly stochastics is complimenting the excessive price action with the indicator on the verge of signaling a bullish crossover.
Capture the Upside, Control the Risk in SPOT Stock
If investors are looking to add a compelling market leader at an attractive discount, you’d be hard-pressed to do better than SPOT stock. But it’s not without a caveat.
Importantly, SPOT is about buying mispriced weakness whose time to change the narrative is here today.
Bottom line: Spotify shares need to show investors the money off and on the price chart, not invite them to buy more SPOT stock on a larger correction and additional crimson-colored earnings.
Given this bullish, but make-or-break observation, a limited-risk and well-leveraged July $170/$180 bull call spread to take advantage of upside with less downside exposure is a favored strategy to buying SPOT stock.
On the date of publication, Chris Tyler 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.