Snap Inc. (SNAP) is a camera company. Snapchat, the company's flagship product, is a camera app that allows users to interact visually with friends and family via brief movies and photographs known as Snaps. The firm has roughly 319 million daily active users.

The company’s shares have declined 86.8% over the past year and 78.9% year-to-date to close its last trading session at $9.88. In addition, the stock is currently trading 88.1% below its 52-week high of $83.34, which it hit on September 24, 2021.

On July 22, shares of the social media firm fell 39.1% in response to the company's disappointing second-quarter earnings. Furthermore, Snap did not issue third-quarter guidance, citing an uncertain operating environment.

High inflation, increasing interest rates, and geopolitical concerns have reduced company spending capacity and dampened demand for SNAP's online marketing platform. Also, Apple's modifications to privacy policies have greatly hampered its ability to target advertisements. Furthermore, increased competition from competitors like TikTok has exacerbated the company's poor performance.

Here's what could shape SNAP's performance in the near term:

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 164.67kx, significantly higher than the industry average of 17.99x. Also, its forward Price/Sales of 3.57x is 162.4% higher than the industry average of 1.36x. Moreover, SNAP's forward Price/Cash Flow of 255.03x is 2734.42% higher than the industry average of 9x.

Inadequate Financials

SNAP's revenue increased 13% year-over-year to $1.11 billion for the second quarter ended June 30, 2022. Its operating loss grew 108% from the year-ago value to $400.94 million.

The company’s net loss increased 178% from the prior-year quarter to $422.07 million. Its non-GAAP loss per share amounted to $0.02. In addition, its adjusted EBITDA declined 94% year-over-year to $7.19 million.

Negative Profit Margins

SNAP's trailing-12-month CAPEX/Sales of 1.96% is 52.5% lower than the industry average of 4.1%. Also, its trailing-12-month ROA, ROC, and ROE of 9.5%, 8.2%, and 26.2%, compare to its respective industry averages. Moreover, its trailing-12-month negative EBITDA margin of 15.3% compares to its industry average of 18.6%.

POWR Ratings Reflect Bleak Outlook

SNAP has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SNAP has an F for Stability and a D for Growth and Quality. The stock beta of 1.19 is consistent with the Stability grade. In addition, poor profitability and inadequate financials are in sync with the Growth and Quality grade.

Of the 64 stocks in the F-rated Internet industry, SNAP is ranked #59.

Beyond what I've stated above, you can view SNAP ratings for Value, Momentum, and Sentiment here.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $14.21 and $34.62, respectively, indicating a bearish sentiment. Moreover, its shares could continue retreating due to the current macroeconomic environment. So, given that the stock looks overvalued at the current price level, we think it is best avoided now.

How Does Snap Inc. (SNAP) Stack Up Against its Peers?

While SNAP has an overall D rating, one might want to consider its industry peers trivago N.V. (TRVG), Yelp Inc. (YELP), and Expedia Group Inc. (EXPE), which have an overall B (Buy) rating.

SNAP shares fell $0.05 (-0.51%) in premarket trading Monday. Year-to-date, SNAP has declined -79.06%, versus a -12.94% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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