Social networking player Snap Inc. (SNAP) primarily operates as a camera company. Founded in 2010, SNAP changed its name from Snapchat, Inc. in 2016. With an array of innovative features, the company operating through its app generates most of its revenues from advertisements.

Amid the pandemic, the company evolved through technological advancements and better advertisement targeting capabilities, helping it gain 152.7% year-to-date. This impressive performance and the potential upside based on several factors have helped the stock earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates SNAP:

Trade Grade: A

SNAP is currently trading above its 50-day and 200-day moving averages of $27.42 and $22.22, respectively, indicating an uptrend. Moreover, SNAP has gained 86.3% over the past three months, reflecting solid short-term bullishness.

SNAP’s revenue increased 52% year-over-year to $679 million for the third quarter ended September 2020. The company’s Daily Active Users (DAUs) increased by 18% year-over-year to 249 million. This can be attributed to a 43% year-over-year increase in DAUs internationally excluding North America to 87 million. Also, the average number of Snaps created every day grew 25% year-over-year over this period.

The company continued its investment in camera and augmented reality platforms. Over 1.5 million lenses were created by the community through Lens Studio in the third quarter. In June, SNAP announced new developer products and partnerships across Snap Minis, Snap Kit, Bitmoji, and Snap Games which have continued to generate growth for the company.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, SNAP is well-positioned. The stock is currently trading just 7% below its 52-week high of $44.18, which it hit on October 26th.

SNAP’s revenue and total assets grew at a CAGR of 45.2% and 10.8% respectively, over the past three years. This growth can be attributed to the company’s continued investment in creating innovative features for the users and better targeting of advertisements.

Peer Grade: A

SNAP is currently ranked #2 out of 58 stocks in the Internet industry. Other popular stocks in the internet group are Twitter, Inc. (TWTR), Netflix, Inc. (NFLX), and Facebook, Inc. (FB).

While FB gained 35% year-to-date, TWTR and NFLX returned 52.9% and 50.9%, respectively, over this period. SNAP outperformed these stocks by gaining 152.7% year-to-date.

Industry Rank: A

The Internet industry is ranked #6 out of the 123 StockNews.com industries. With the work-and-learn-from-home culture being the “new normal,” the internet industry has reached record highs this year. With no definitive news of the vaccine available, along with the second wave of coronavirus leading to stringent social distancing restrictions across Europe, this industry is expected to grow substantially in the months to come.

Overall POWR Rating: A (Strong Buy)

SNAP is rated “Strong Buy” due to its short-and-long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

SNAP has the potential to soar in the upcoming months despite gaining 152.7% so far this year, based on its continued business growth, favorable revenue outlook, and strong financials. The increasing trend to stay at home amid the second wave of coronavirus bodes well for SNAP.

SNAP has an average broker rating of 1.41, indicating a favorable analyst sentiment. Out of 33 Wall Street analysts that rated the stock, 24 rated it “Strong Buy.”  Moreover, SNAP’s earnings surprise history is impressive with the company beating the street EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $721.48 million for the quarter ending December 2020 indicates a 28.6% growth from the same period last year. Its EPS is expected to grow 155.6% next year. This outlook should keep SNAP’s price momentum alive in the near term.

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SNAP shares were trading at $41.21 per share on Tuesday afternoon, down $0.06 (-0.15%). Year-to-date, SNAP has gained 152.36%, versus a 6.86% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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