- Now back near its 52-week low, bottom-fishers may be coming back for seconds with Skillz (SKLZ).
- Outside of external factors that are tough to predict, it’s hard to see this hard-hit stock making much of a recovery.
- There’s no need to buy SKLZ stock ahead of earnings, as there’s little to suggest results or updates will change the story here.
Falling back after its dead cat bounce in late March, shares in Skillz (NYSE:SKLZ) have fallen near their 52-week low of just more than $2. Some bottom-fishers who profited from going contrarian on SKLZ stock last month may be tempted to come back for seconds.
After all, in a span of a few weeks, shares in this mobile gaming company saw a high double-digit rebound before the bounce faded. However, what drove its rally last month may not play out again this month — or anytime soon, for that matter. Buying in the hopes it will spike due to external factors is not a substantive reason to pick up shares.
Neither is buying SKLZ stock on its fundamentals. Barring new information on management’s turnaround plans, it remains tough to be confident the situation will change.
Why Last Month’s Price Spike Might Not Repeat
A poor earnings report sent Skillz shares into the market graveyard, but factors unrelated to the company temporarily sprung it back to life last month. The mid-March relief rally, coupled with the stock’s high short interest, caused it to spike in price.
Put simply, what drove the SKLZ stock dead cat bounce was external factors that are tough to predict. You may think high short interest could cause it to make another big move. Around 19.2% of its outstanding float has been sold short. Unfortunately, there’s not much logic in buying for a short squeeze that may or may not happen.
Outside of another relief rally, there’s only one way we’re going to see another squeeze for SKILZ stock. That would be the release of a better-than-expected earnings report. Alternatively, it could share new information that suggests it’s making progress and has a solid game plan to turn its fortunes around.
Sure, you could buy it now ahead of its next earnings release on May 4. However, given it’s made little progress in turning things around, there’s not much justification for coming to that conclusion.
SKLZ Stock and Its Lackluster Turnaround
As I discussed in my last article on SKLZ stock, management has a plan of action to improve this floundering company’s fortunes. The question is whether this turnaround plan will work.
First, Skillz will move away from its costly customer acquisition strategy. Second, it will retain and fully monetize what remains of its user base.
The first step is the easy part. All it has to do is not spend so heavily on marketing and promotional costs. The second step is not so easy. It’s not as if Skillz’s management has zero game plan at all to make its cash competition-based mobile gaming platform more attractive.
In the past year, it bought a mobile advertising company to diversify its revenue streams. It’s also formed several partnerships to improve the quality of games on its platform. Yet none of these moves have helped improve its fiscal performance in recent quarters.
Based on guidance provided in its last earnings report, the changes it’s putting into place won’t even make a dent in narrowing its losses. It only expects its EBITDA margin to go from -47% to -37% in 2022. Despite management’s efforts, it still expects to keep operating deep in the red.
The Verdict on SKLZ Stock
Still earning an “F” rating in my Portfolio Grader, management at Skillz may be trying to fix the situation. But so far, it’s simply not working. Although it’s possible it will pleasantly surprise the investing public with better-than-expected numbers, with the sell side revising its estimates downward, little suggests this will be the case.
There’s also not much to indicate management will unveil refined plans for getting this company out of its current downward spiral. Not only that, it’s far from certain investors will respond favorably to a new plan if it presents one. Given how badly shareholders have been burned over the past year, the market may wait until plans turn into actual improvements before bidding up shares.
With long-shot odds of seeing even a partial share price recovery, avoid SKLZ stock. There’s no reason to be confident it will change the game anytime soon.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.