It may be hard to believe, but Snap Inc (NYSE:SNAP), is making a comeback. The stock that looked doomed during what was a disastrous 2018 has been on a strong rally in the new year. Since the start of 2019, Snap’s share price has risen by an incredible 80%.
Snap finished 2018 at $5.51 a share and as of Monday’s close was closing in on $10. The last time the stock was regularly trading above $10 was back in early September, amid its free fall.
The turning point for the stock came in early February when it released its Q4 earnings when sales came in above expectations and the company showed some stability in its user base. Unfortunately, Snap is still not doing all that well as it has continuously finished deep in the red in each of the past four quarters and over the trailing twelve months has accumulated a net loss of more than $1.2 billion.
The company has been bleeding cash as well as it is not generating positive cash flow from its operations, which is a big problem for a stock that’s already cheap, as more share issues will only cause further dilution.
Although Snap has rallied well to start the new year, I’m skeptical as to how much longer this uptrend can continue. With the stock trading at nearly six times book value and 11 times its sales, investors are paying a big premium for a company with plenty of problems. I’d suggest waiting for Snap to get a lot closer to breakeven before taking a chance on this stock.
