One Wall Street Analyst Believes Reddit Stock Has 30% Upside

Reddit (NYSE: RDDT)Reddit's stock price has fallen straight from the highs the social media company hit shortly after its March IPO. While the initial surge sent Reddit's stock price to nearly $75 per share, it's been downhill ever since. The stock is down more than 40% from its all-time high.

Analysts at Loop Capital are optimistic about the upcoming rebound. The investment bank activated its rating on Reddit stock on Monday, giving it a "buy" rating with a target price of $55. That's well below the stock's price in March, but it's still up about 30% from where it was before.

Favorable financial model

Social media is a great business. Content comes from users, capital expenditures are often negligible, and gross margins can peak as advertising expenditures increase. This is the overarching argument behind Loop Capital's optimistic outlook.

In particular, Loop Capital expects Reddit to continue to grow faster than its social media peers in terms of both users and revenue. in 2023, the company's revenues grew by 21% to $804 million, with 73.1 million daily active users.

The investment bank also expects Reddit's gross margins to be around 85% and capital expenditures to be very low due to its asset-light business model. Although Reddit is experiencing a free cash flow loss in 2023, its numbers are moving in the right direction.

Is Reddit stock worth buying?

Since Reddit can monetize its platform by selling ads and licensing data to train AI models, its revenue may continue to grow at a rate of 20% per year, but the fact is that the company is far from profitable at the moment. in 2023, the company had a net loss of $91 million and a free cash flow loss of $75 million. With a P/E ratio of over 8, investors should be cautious.

Should you invest $1,000 in Reddit right now?

Before buying shares of Reddit, consider the following:

Motley Fool Stock AdvisorA team of analysts has just selected what they consider to be the most suitable name for investors to buy.10Reddit is not one of the 10 stocks listed on ....... The 10 stocks that made the list could generate huge returns in the years to come.

Stock AdvisorIt provides investors with an easy-to-understand blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Since 2002, StockAdvisorThe service has more than doubled the return on the S&P 500 Index.

View these 10 stocks

*Stock Advisor's Circular as of April 15, 2024

Timothy Green does not own any of the shares listed above.The Motley Fool does not own any of the shares listed above.The Motley Fool has a disclosure policy.

A Wall Street Analyst Says Reddit Stock Has 30% Upside was originally published by The Motley Fool.