Shares of Snap Inc (NYSE:SNAP) popped last week after the company reported better-than-expected earnings for the third quarter. Its net loss of $200 million was a 12% improvement from the previous year when its bottom line was $227 million in the red.
Sales of $679 million for Q3 were up 52% year over year and blew past analyst estimates of just $555.9 million. Snap’s projecting the sales growth to slow a little bit in Q4, coming within a range of 47% to 50% for the last period of the year.
The strong performance in Q3 has made investors bullish on Snap’s shares, which are now up over 75% in just the past month. At the end of September, the stock was trading at $26 and last week it closed at more than $43, hitting a new 52-week high. Investors who buy the stock now are paying 26 times both sales and book value. A year ago, the stock was only trading at 15 times sales and 10 times book value.
To get to $50 may be within the crosshairs with the stock less than 16% away from that threshold. However, with Snap’s shares trading at their all-time highs, and the stock now significantly oversold – at a Relative Strength Index (RSI) of over 90 – it wouldn’t be a surprise to see the price start to come down.
Hype can only drive a price up so far so fast. A stock’s overbought when its RSI level is above 70, and Snap’s stock is well above that level today. Although it’s possible the bullishness may last a little longer, investors shouldn’t count on the stock hitting $50 and staying there.