On March 15, Skillz (NYSE:SKLZ) stock was trading at $2.28. In the next three trading sessions, SKLZ stock surged by 43% to $3.26. Of course, the rally was short-lived and the downtrend resumed. Over the last 12-months, the stock has plummeted by almost 90%.
Skillz is scheduled to report first quarter results for 2022 on May 4. With the stock have corrected in the recent past and with a short interest of 21%, I would bet on another short squeeze rally.
There are two important reasons to believe that SKLZ stock is attractively valued.
First, the company reported revenue of $384 million for 2021. For the current year, the revenue guidance is $400 million. It’s clear that sluggish top-line growth has disappointed the markets. However, this guidance is already factored in the stock. The company indicated that the guidance does not include upside from new content or new distribution channels. Any positive surprise on this front can trigger a sharp rally.
Furthermore, Skillz also indicated in their fourth quarter 2021 report that the focus for 2022 is on efficiency and profitable growth. It’s very likely that lower growth will be associated with an improvement in earnings before interest, taxes, depreciation, and amortization (EBITDA) margin. However, Skillz believes that growth will accelerate in 2023 as the mobile gaming market swells.
Even with this factor, I would stay away from initiating any long-term position on SKLZ stock. There needs to be positive results on a sustained basis for investors to regain confidence.
An important point to note is that growth stocks, in general, have witnessed a significant sell-off in the first few months of 2022. It also makes sense to remain cautious considering the macroeconomic conditions.
From a financial perspective, the company reported $743 million in cash and equivalents as of December 2021. There is ample financial flexibility to navigate an extended period of cash burn. Additionally, Skillz has been active on the acquisition front. The balance sheet provides the financial flexibility to pursue inorganic growth.
Overall, SKLZ stock remains a speculative bet. The company has disappointed in the past in terms of growth and profitability. Investor confidence seems to be at an all-time low. The management has promised corrective action in 2022. The first-quarter results will provide some insight on the execution. A small trading bet can be considered before Q1 2022 results.
On the date of publication, Faisal Humayun did not hold (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.
