Still Bullish On SNAP, Even At 52-Week Lows? 3 Ways To Trade It

  • SNAP’s social media shares have lost over 23% in the past 12 months
  • With 306 million daily active users, Snap is one of the most popular social networks among teens
  • Long-term investors can consider buying dips in SNAP shares, especially if it dips below $40

Investors in social media group Explode, Explode (NYSE:) She didn’t have a good 2021. In the past 12 months, shares have fallen more than 23%. In fact, since the beginning of 2022, SNAP has lost more than 6%. The stock closed Wednesday at $42.73.

However, on September 24, 2021, SNAP shares saw a record high of $83.34, which means they lost about 47% in less than four months. The 52-week stock range was $38.51 – $83.34, while the market capitalization was $70.4 billion.

Snapchat was launched in 2011, and it is one of the most popular social networking platform among teens. The app currently has 306 million daily active users, nearly two-thirds of these users living outside North America. Like other social media platforms, most of Snap’s revenue comes from selling ads. Therefore, the growth in daily active users remains one of the most important metrics that Wall Street monitors.

Recent metrics indicate:

“Advertising spend in the social media advertising sector is expected to reach $62,998 million in 2022.”

By 2026, the market is expected to reach nearly $90 billion, showing a compound annual growth rate (CAGR) of 8.80% between 2022-2026.

Management announced the third quarter on October 21. Revenue was $1.07 billion, an increase of 57% year over year. The administration has highlighted the iOS privacy changes made by An apple (NASDAQ 🙂 negatively impacted advertising revenue.

Meanwhile, the net loss decreased to – $72 million. A year ago, it was – $200 million. The adjusted share price was 17 cents. Snap added 13 million daily users during the quarter, up about 23% year over year.

On the results, CEO Evan Spiegel said:

“We are now working on the scale needed to overcome significant headwinds, including changes to the iOS platform that affect the way ads are targeted, measured and improved, as well as global supply chain issues and labor shortages affecting our partners.”

Investors have recently been lobbying several growth names, and Snap was one of them. Before the quarterly results were announced, the shares were around $75. The next day, they opened for less than $60. On January 10, SNAP stock hit a 52-week low of $38.51.

What to expect from Snap Stock

Out of 39 analysts polled by Investing.comSNAP stock has been rated “Outstanding”.

The analysts also have a 12-month average price target of $73.75 per share, which means an increase of close to 72% from current levels. The 12-month price range is currently between $53 and $104.

Analyst consensus estimates polled by Investing.com.

Analyst consensus estimates polled by Investing.com.

Chart: Investing.com

However, according to a number of valuation models, such as multiples of P/E, P/S or terminal values, the average fair value of SNAP’s stock via InvestingPro is $35.61, implying a potential decrease of approximately 17%.

fair value of SNAP

Moreover, we can take a look at the financial position of the company which was determined by ranking more than 100 workers against their peers in the telecom services sector. In terms of growth health, Snap scores 4 out of 5 (the highest score). However, concerns about cash flow and profitability pushed its overall performance rating to “fair”.

Currently, the P/B and P/S ratios for SNAP stock are 29.9x and 18.3x, respectively. By comparison, these benchmarks for its peers are 3.1x and 8.0x.

And if we look at two other social media giants, we can see that even for a growth stock, Snap has a frothy valuation. Comparable numbers to ID pads (NASDAQ: 7.0x and 8.3x Twitter (NYSE:), it is 4.5x and 6.7x.

We expect SNAP’s stock to continue to fluctuate through the end of the month, before management reports fourth-quarter results in early February. Both SNAP and its peers on social media could come under pressure if Wall Street is not satisfied with the sector’s overall results. In this case, we will likely see Snap shares drop below $40 again.

However, despite any potential short-term decline, we are optimistic about SNAP in the long-term.

Adding Surprise Stocks to Portfolios

SNAP bulls with a 2-3 year horizon and who are not concerned with short-term volatility can consider buying stocks around these levels for long-term portfolios. The target will be $73.75, analysts’ consensus forecast.

Alternatively, investors can consider purchasing an exchange-traded fund (ETF) that owns SNAP. Examples include:

  • Simplifying Volt Pop Culture Disruptation ETF (New York Stock Exchange 🙂
  • Global X Social Media ETF (NASDAQ:)
  • Invesco Dynamic Software ETF (New York Stock Exchange 🙂
  • Roundhill Ball Metaverse ETF (New York Stock Exchange 🙂

Finally, investors who believe that SNAP stock can continue to reach new highs in the early part of the new year may consider selling a cash-secured put option in Snap stock — a strategy we cover regularly. Since it includes options, this setup is not suitable for all investors.

Selling with cash guarantee

Such a bullish trade could particularly attract those who wish to take a premium (from a short sell) or perhaps own SNAP shares for less than the current market price of $42.70 at the time of writing during Wednesday.

A Snap stock put option is an option to sell 100 shares.

Suppose an investor wants to buy shares of SNAP, but does not want to pay the full price of $42.70 per share. Instead, the investor prefers to buy the shares at a discount for the next several months.

One possibility could be to wait for Snap’s stock to fall, which it may or may not do. Another possibility is to sell one contract of a SNAP put option with a cash collateral.

So a trader typically writes an ATM or an out-of-the-money (OTM) put option and simultaneously allocates enough cash to purchase 100 shares of stock (hence “cash insurance”).

Let’s say the trader makes this trade until the option expiration date on March 18th. Since the stock is at $42.70 at the time of writing, the OTM put option will have a strike of $40.

So the seller would have to buy 100 shares of SNAP at the $40 strike if the option buyer had to exercise the option to assign it to the seller.

The SNAP 18 40-strike put option is currently offered at a price (or premium) of $3.25. The buyer of the option would have to pay $3.25 x 100, or $325, in premium to the seller of the option. This premium amount belongs to the seller of the option no matter what happens in the future. The put option will stop trading on Friday, March 18th.

Assuming the trader enters a cash-secured put option position at $42.70 now, at expiration on March 18, the seller’s maximum return will be $325, excluding trading commissions and costs.

The seller’s maximum profit is this premium amount if the SNAP stock closes above the $40 strike price. If that happens, the option ends up worthless.

If the put option is in the money (meaning the market price of Snap’s stock is below the strike price of $40) at any time before or at expiration on March 18, then that put option can be assigned. The seller would then be required to buy 100 shares of SNAP stock at the put option strike price of $40 (for a total of $4,000).

The break-even point in our example is the strike price ($40) minus the option premium received ($3.25), which is $36.75. This is the price at which the seller will start to incur a loss.

Selling secured for cash is a moderately more conservative strategy than buying company stock outright at the current market price. This could be a way to capitalize on any volatility in Snap stock in the coming weeks, especially around the earnings announcement.

Investors who end up owning SNAP shares as a result of an offer sale may consider making covered calls to increase the potential returns on their shares. Thus, a cash-secured sale can be considered as the first step in stock ownership.

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