After gaining over 40 percent in its New York Stock Exchange debut yesterday, Snap, Inc.'s SNAP stock powered higher, yet again, on Friday, to close up $2.61 or 10.7 percent, to $27.09. SNAP shares only first came available to the public on Wednesday, priced at $17, above an expected $14 to $16 range. After more than 200 million shares of SNAP stock traded in yesterday's debut, another 148 million traded today. The action has left more than one investor asking "Is it too late to buy SNAP stock?" and "Should I buy SNAP stock?"
For investors who don't already own SNAP, and are considering purchasing it, in a recent video, Alissa Coram with Investor's Business Daily, suggested that rather than chasing an obvious hot commodity, waiting for hot IPOs like SNAP to "consolidate" might be a better course of action.
SNAP shares can't keep going up forever, eventually they must move sideways, and consolidate. IBD calls the patterns formed by these consolidations on price charts "bases." The publication notes that bases can be as short as five days, or more than a year in length.
Hot IPO bases vary in length
For example, shares of Fitbit, Inc. (NYSE: FIT) formed what IBD described as an "ultrashort IPO base" that only lasted five days following their June 18, 2015 IPO at $20 per share. FIT stock topped out at $51.90 after a fierce post-IPO base breakout, more than double the price it was originally offered at. Today, FIT shares closed at $6.07. The company had previously reported profits and, until recently, forecasts were for profits in 2017 and 2018.
Currently, the Wall Street consensus estimate is for per-share losses in each year, of $0.36 and $0.20, respectively.
By comparison, shares of Facebook, Inc. (Nasdaq: FB) dawdled in an ultra-long IPO base, for over a year, before breaking out above their then-high of $45, carved their first day of trading, in May 2012. Unlike SNAP stock, which continued to power higher on its second day, Facebook stock turned down, trading as low as the high teens, before turning up, breaking out in August 2013, and earning FB IPO investors close to 260 percent to date.
A chart highlighting Facebook stock's long IPO base is featured in the image gallery.
Snap profitability key to future of SNAP stock
Unlike Fitbit, for which analysts' estimates are being slashed, FB EPS estimates have been raised, and are calling for profits, of $5.42 and $6.68, in 2017 and 2018, respectively. The 2017 number represents year-over-year growth of 28.1 percent; the 2018 number represents annual growth of 23.2 percent.
Facebook reports zero debt, a $29.45 billion cash position, and a return on equity of 19.8 percent, as well as an operating margin of 45.2 percent, and a profit margin of 37.0 percent.
The Goldman Sachs Group, Inc. (NYSE: GS) has forecast that Snap revenue will climb by 500 percent, and reach $2 billion, by 2018. Currently, the consensus among the four analysts tracked by Yahoo Finance who offer EPS estimates for Snap are calling for per share losses of $0.44 and $0.16 in 2017 and 2018, respectively. SNAP stock is trading up, close to 1 percent, in after-hours trading.
