SNAP Stock Alert: Don’t Hold Your Breath for a Sustained Snap Rally

Stocks to sell

Snap (NYSE:SNAP) has gone from an up-and-coming name in the social media space, to arguably an “also ran” within the sector. This has resulted in a dramatic price decline for SNAP stock over the past two years.

Late last month, a poorly received quarterly earnings report (more below) sent shares down to multi-year lows. However, in more recent days, the stock has experienced what can be best described as a “snapback.”

In a matter of days, SNAP has made up for the bulk of its post-earnings losses. Interestingly enough, this sharp move higher does not seem to be driven by any news directly from the company.

That said, it’s not as if this rebound emerged from a left field. A recent development may help to explain why it has happened.

Still with taking this factor into account, don’t assume that a continued rebound is taking shape.

SNAP Stock and its Recent Roller Coaster Moves

On April 27, Snap released financial results for the quarter ending March 31. The company reported a 7% year-over-year drop in revenue, increased operating losses, and a 99% decline in adjusted EBITDA compared to the prior year’s quarter.

These results (which fell short of analyst expectations) elicited a negative reaction from the market. SNAP stock fell 17% on April 28, continuing to slide lower through early May.

However, as mentioned above, shares have since started to bounce back. After falling to as low as $7.86 per share a few weeks ago, as of this writing SNAP is back at around $9.60 per share.

For reference, the stock closed at $10.50 per share just before the aforementioned earnings release.

Snap has made no major announcements since reporting earnings. There has been a development that may explain renewed bullishness for this stock over the past few days involving a rival social media platform.

Talk of a TikTok Ban

While not for certain, it’s possible that recent news about a ban of social media platform TikTok in the U.S. state of Montana may be driving SNAP stock higher.

Sure, as one of the smaller U.S. states by population, a Montana ban of the controversial video sharing platform by-itself isn’t game-changing.

Not only that, it’s questionable whether this ban will hold up in court. Montana-based TikTok creators have already filed suit against the state in U.S. District court, alleging that the ban is unconstitutional.

However, if the state prevails, it could lead to other states banning TikTok, which is owned by Chinese internet technology company ByteDance.

This state-level ban could also help add some momentum to the growing push for a federal-level TikTok ban.

With this, speculators may begin to dive back into SNAP, hoping such an outcome plays out, as with a key competitor out of the way, Snap could experience a re-acceleration of user and revenue growth.

Nevertheless, even if TikTok were banned from the U.S. market, I’m skeptical this will change the story with Snap.

Bottom Line

The chances of a U.S. TikTok ban are still slim. Plus, it’s unclear how such a ban would lead to a big growth resurgence for this fading star of the social media space.

If anything, Instagram’s TikTok-esque short-form video feature, Reels, has already showed initial success, whereas Snap’s Spotlight video feed has yet to do so.

In the immediate term, this dubious potential catalyst could help to provide the stock some support, or perhaps send it slightly higher.

Having said that, once the market realizes that it is grasping for straws, by bidding up SNAP stock on speculation of a U.S. TikTok crackdown, shares could quickly reverse course. This makes staying away your best move.

SNAP stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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