Why Snap Stock Soared Today

Key Points
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Edgewater Research isn't yet ready to buy Snap stock, but it's getting close.
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Edgewater says Snap's direct response advertising is improving, and that other analysts are missing this improvement.
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Snap might earn more than the $0.01 per share it's "supposed" to earn in Q2.
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10 stocks we like better than Snap ›
Stock of social media star Snap (NYSE: SNAP) ran up 6.1% through 1:11 p.m. ET Friday after analysts at Edgewater Research claimed that other analysts' consensus forecasts for Q2 2025 were "setting a low bar," creating the potential for an earnings beat.
Actually, the potential for a second earnings beat.
Snap's earnings history -- and future
Snap last reported earnings in April (for Q1), doubling consensus forecasts with $0.08 in profit per share. Looking ahead to the July 31 Q2 report, though, forecasts have the company slowing down significantly, earning only $0.01 per share on high-single-digit sales growth ($1.3 billion).
Edgewater thinks that's unreasonably pessimistic, however.
In a note covered on StreetInsider.com today, the analyst argues that Snap has "momentum" heading into Q2, especially in direct-response advertising. While the analyst remains leery of the economy in general and its effect on Snap's advertising revenues, and maintains only a neutral rating on the stock, Edgewater is becoming somewhat more optimistic.
Is Snap stock a buy?
Should it be, though?
Even if other analysts are wrong, and Snap's earnings don't crater in Q2, the company's really not doing well enough to justify its current valuation of more than 46 times trailing free cash flow. Sales growth was only 8% last quarter, and earnings according to generally accepted accounting principles (GAAP) remain negative. But to deserve a 46x FCF valuation, I'd argue Snap has to do better than simply not let its earnings get even worse. It has to grow both sales and earnings massively to deserve such a high multiple.
Unless and until Snap proves it can do that, I think this stock's a sell.
Should you invest $1,000 in Snap right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Snap Stock Soared Today was originally published by The Motley Fool

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