Snap: great company, poor stock

Snap’s downfall – last week’s collapse means it has lost roughly 85 per cent of its value since peaking last year and has almost halved since 2017′s initial public offering (IPO) – is just the latest reminder that a great company is not a great stock.

After all, it’s not like the company hasn’t delivered, notes Compound Capital Advisors’ Charlie Bilello, who says Snap’s revenues have increased 990 per cent since its IPO.

The problem is expectations were too high, with Snap trading at 64 times’ sales at its IPO. Today, it trades on just 4.6 times’ sales.

“Snap has been a great company”, says Bilello, “but it hasn’t been a great stock.”

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However, that’s not the only lesson to be learned from Snap’s history as a public company. Some sceptics might have been tempted to short Snap stock on account of its demented valuation, but that would have been a bad idea. Snap shares soared tenfold during the pandemic, reminding investors of another timeless investing adage – the market can stay irrational longer than you can stay solvent.