Is Snap stock a buy after falling nearly 90% from its peak?

We received several emails asking whether $SNAP is a good investment after falling nearly 90% from its peak. Yes, we read them, so keep emailing us with stuff you want to see. Let’s dive in.

Good stocks ain’t cheap, and cheap stocks ain’t good

…With exceptions. Some investors filter through companies near their 52-week low as a strategy — but buying them just because they’re down isn’t a sound strategy.

Companies often trade at such low levels for a reason. Just because a stock:

• Has fallen 90% doesn’t mean it can’t fall further.
• Is down doesn’t mean they’ll recover back to their previous high.

Ask yourself: Are there fundamental problems with the company/industry, or is the drop due to external economic conditions? With Snap, it’s both…

Snap has everything going against it…

Snap reported its weakest sales growth ever and didn’t give a forecast for the upcoming quarter — a troubling sign.

• Snap is massively unprofitable with few signs that could reverse.
• User growth is slowing, and competition is increasing, with TikTok stealing market share.
• The advertising market has slowed considerably, and it’s uncertain when it’ll recover.

Apple’s privacy changes also impacted ad performance. For ad platforms, the big question is when advertisers will return. In 2008 and 2009, ad spending fell 5.8% and 17.5%, respectively, and spending didn’t fully recover until 2015.

But today’s market is much different. Consumers and businesses are in stronger positions, and digital ad marketing has matured — giving advertisers more data and better advertising options.

Investors: Consider market conditions

Pinterest (NASDAQ:PINS) — which is near breakeven with low debt levels ($202M vs. Snap’s $4.2B) — has stronger fundamentals. But even Pinterest is at the mercy of market conditions…

• Strategists don’t believe we’re at the market bottom yet — which opens Snap up to further losses.
• A market rebound won’t necessarily mean market appetite for money-losing high-growth stocks will return.

When the market does recover, investors will have another question — which stocks will outperform? A lot can change in a couple of months, but we’ll leave that for another day.