Analyst Targets 38% Upside for Snap Stock

JMP Securities is bullish on Snap's user growth potential

Managing Editor
Dec 13, 2019 at 9:56 AM
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The shares of Snap Inc (NYSE:SNAP) are up 1.8% to trade at $14.72 this morning, after JMP Securities upgraded the Snapchat parent to "market outperform" from "market perform." While also setting a price target of $20, the analyst in coverage expressed confidence in the company's ability to grow its user base and drive engagement forward.

Despite more than doubling in 2019, Snap stock was down 8.5% this quarter heading into today. That pullback found support at the shares' 200-day moving average though, a trendline that has come in handy the last two months. JMP's lofty price target sits in territory not achieved since February 2018, but the good news is there's pessimism abound that could unwound take the security back there in 2020. 

For starters, most analysts remain on the sidelines, and we've seen today what an upgrade can do to the stock. Of the 26 brokerages in coverage, 15 rate it a tepid "hold." Meanwhile, short interest is at its highest points since February, and accounts for 15.2% of SNAP's total available float. At the stock's average pace of trading, it would take shorts almost a week to buy back their bearish bets.

Options traders are focused on calls. The equity's 10-day call/put volume ratio across the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 7.49 and ranks 3 percentage points from an annual high. This shows a stronger-than-usual demand for long calls relative to puts in recent weeks. However, given the amount of short interest tied up in the stock, its possible some of this call buying is shorts seeking an options hedge.

Whatever the motive, now is an opportune time to speculate on SNAP's short-term trajectory with options. The stock's Schaeffer's Volatility Index (SVI) of 42% is in the 5th percentile of its annual range, meaning short-term options on the security are relatively inexpensive at the moment, from a volatility standpoint.

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