Snap Inc (NYSE:SNAP) had its IPO issued in early March and initially showed large price increases up to a high of $29.44. However, since then the stock has fallen mightily, down to just $13.89 as of the close of Tuesday. In the past month the stock has declined over 20%, and it still might decline further.
A technical analysis of the stock shows a very strong downward trend taking place. Reaching a new low as of the last trading day also is not a good sign as the stock has not yet shown any signs of recovery. The Relative Strength Index (RSI) is a tool that looks at the average daily gains and losses to determine if a stock has been oversold or overbought. For the past few weeks Snap’s stock has been under 30, indicating it has been oversold. However, a low RSI is not enough to indicate a floor has been found. Although a big sell-off of the stock has taken place, it hasn’t shown any signs of slowing down.
The sell-off of Snap’s shares isn’t surprising, it is just overdue. Facebook offers very similar features that can compete with Snap and Facebook already has a much larger user base. Snap has also seen some negative press lately about potentially misleading investors, which is never easy to shake off. The moat the company has is questionable and so is its potential growth.
It certainly looks like the hype around the company has started to die down, and with all the negative press around it and its poor financial results, investors may be seeing there is not much substance behind Snap. I would avoid this stock as right now it looks to be in a free fall.
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