Social media stocks are in the spotlight on Thursday. That is as Tesla (NASDAQ:TSLA) Chief Executive Officer Elon Musk makes an all-cash deal for Twitter (NYSE:TWTR). While Snap (NYSE:SNAP) may not be in play — that we know of — it is not one we should ignore. SNAP stock is still up 22% from last month’s low, but remains 59% below its high. Does that spell opportunity? According to a group of analysts, the answer is a resounding “yes.”
Over the last three weeks, Snap stock has received four positive analyst ratings, all with a buy-equivalent rating. Further, the analysts have assigned significantly higher price targets:
- Bank of America (NYSE:BAC) — $55
- Piper Sandler (NYSE:PIPR) — $53
- Morgan Stanley (NYSE:MS) — $59
- Loop Capital Markets — $65
The average of those four targets is $58. From current levels, that would imply a roughly 65% upside in the stock. And you know what? Snap stock may just get there. Excluding the buyout frenzy surrounding Twitter, Snap is the one that has had the most momentum in its business.
When we break down the estimates, analysts remain quite optimistic despite the selloff in the share price. Analysts expect revenue growth of 35% to 42% in each of the next four years. If that comes to fruition, Snap will generate more than $14.6 billion in revenue in 2025. That is up significantly from the $5.6 billion that is expected this year.
As for the bottom line, bears’ biggest complaint has been free cash flow and earnings. At one point, it was mine, too. However, analysts expect the company to approach break-even results in 2022 and a flip to profitability in 2023. If that is the case — and with estimates jumping quickly for 2024 and 2025 — it is my view that Snap stock will only struggle for so long.
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Looking at the chart, bulls have a potential buy zone should the stock move lower. While I’m optimistic on Snap stock for the longer term — and so are the analysts — it is hard to argue about the recent poor price action.
Snap stock is consolidating below all of its major daily moving averages. However, if it rotates lower, it could give bulls a chance to get long. Specifically, I’m looking at the $30 area. That is where Snap finds the 200-week moving average and uptrend support (blue line).
A break of that zone could put the mid-$20s in play. Otherwise, keep an eye on the 50-day moving average on the upside. That is followed by the $40 area and eventually the $47 to $50 zone.
On the date of publication, Bret Kenwell had a long position in SNAP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
