Yahoo Finance Snap Inc Stock Could Take 2018 by Storm
Snap Inc (NYSE: SNAP) got off to a bumpy start as a publicly traded stock in 2017, but it is soaring more than 8 percent on Tuesday morning after Barclays said it's finally time for investors to jump in and buy the stock.
Snap's initial public offering in March was at $17 per share. The stock quickly spiked as high as $29 but then endured several months of steep declines before bottoming at $11.28 in August. Since then, the stock's price has stabilized a bit, and Barclays analyst Ross Sandler says Snap now has a big 2018 ahead of it.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
Barclays has initiated coverage of Snap for the first time, giving the stock an "overweight" rating and $18 price target. Ross sees several reasons the stock could outperform next year. First, market expectations are incredibly low. After three consecutive disappointing earnings reports, Snap has a very low bar to clear in coming quarters, Ross says.
Second, he believes investors will stop thinking about Facebook ( FB) as a Snapchat killer and realize that Facebook and Snap can coexist the same way online travel companies Priceline Group ( PCLN) and Expedia ( EXPE) have coexisted and thrived.
Third, Snap has an extremely large amount of short sellers betting against the stock and has more total short interest than its peers. Short covering could help provide support for the stock during periods of volatility and could contribute to bullish momentum if the stock starts heading higher.
Ross says the 12 percent stake that Tencent Holdings recently took in Snap is also a huge vote of confidence from a major Chinese tech giant and should put a floor in the stock at around $14 per share.
Finally, Ross says Snap's new ad units, such as Promoted Stories, could serve as near-term catalysts for the stock if they begin to show positive trends.
"In short, we think the worst is behind SNAP, and the company is likely to get back on track in 2018," Ross says. "The valuation is rich at 12x [2018 revenue estimates], and there is certainly no shortage of risks, but we think most of them are well understood and in the current Street narrative."
[See: 10 Great Tech ETFs That Stay Under the Radar.]
Ross says the fundamental turnaround for Snap could start as soon as the company's fourth-quarter earnings report when he expects Snap to beat consensus revenue estimates of $253 million.
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