Can Reddit’s Soaring Stock Continue After Meme Frenzy and Social Media Rival Gains?

Thinking about what to do with Reddit’s stock right now? You’re not alone. After all, few social media names have generated as much attention over the past year as Reddit. With Reddit’s shares up a massive 330.3% over the last 12 months and a solid 53.3% gain year to date, it is clear that the market’s perception of this company has shifted abruptly. Even in the last 30 days, Reddit stock managed to tack on 8.3%, and in the past week alone, it’s up 6.0%. Those are the kind of moves that catch the eye of anyone trying to figure out where things might go next.

Some of this momentum can be traced back to revived enthusiasm for social media platforms in the wake of renewed “Meme Stock” fervor this summer. Reddit itself was at the center of this trend, with posts helping push several stocks higher, reminding everyone of the power of online investor communities. Meanwhile, classmates like TikTok and traditional rivals such as Meta and X have been making headlines of their own, keeping the social media ecosystem dynamic and unpredictable.

But price is only half the story. The big question for investors now is whether the fundamentals support these impressive gains. Looking at Reddit’s current value score, the company is undervalued in just 1 out of 6 key valuation checks. That’s not exactly a ringing endorsement, but numbers don’t tell the whole story either.

Let’s dive into the standard ways analysts assess valuation for a stock like Reddit and explore why there might be an even better way to understand what Reddit is really worth.

Reddit scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Reddit Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to their present value. For Reddit, this analysis is based on the 2 Stage Free Cash Flow to Equity approach, which incorporates more aggressive near-term projections and steadier long-term growth.

Currently, Reddit generates Free Cash Flow (FCF) of $390 Million. Analysts forecast robust growth, with projected FCF reaching approximately $2.10 Billion by the end of 2029. While analysts provide estimates for the first five years, Simply Wall St extends these projections for the latter years to arrive at a ten-year outlook.

Based on these forecasts, the DCF model calculates Reddit’s fair intrinsic value at $280.58 per share. This implies the stock is trading at a 9.4% discount compared to its estimated intrinsic value. In other words, it is about right relative to DCF fundamentals at current levels. Investors should note that while there is an implied undervaluation, it is not substantial enough to suggest a screaming bargain.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Reddit.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Reddit's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Reddit Price vs Sales (P/S) Ratio

The Price-to-Sales (P/S) ratio is commonly used to value growth-oriented companies like Reddit, especially when profitability is still developing or profits are volatile. For businesses investing heavily in future growth, the P/S ratio offers a clear snapshot of how much investors are willing to pay for each dollar of revenue. This measure can be more meaningful than earnings-based multiples in these early phases.

Reddit’s current P/S ratio stands at 28.5x, which significantly outpaces the Interactive Media and Services industry average of 1.3x as well as its peer group average of 3.2x. At first glance, this might suggest Reddit is extremely overvalued.

This is where Simply Wall St’s “Fair Ratio” is especially valuable. Unlike a straight industry or peer comparison, the Fair Ratio accounts for factors such as Reddit’s revenue growth prospects, profit margins, risk profile, scale, and industry dynamics. It is tailored to the company’s unique situation rather than a one-size-fits-all benchmark. For Reddit, the Fair Ratio is calculated at 11.6x, reflecting an expectation of higher growth and potential compared to peers, but not to the extent that the current market price suggests.

Given that Reddit’s actual P/S multiple is more than double its Fair Ratio, the stock is currently priced above what its fundamentals justify.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Reddit Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a personalized story that connects what you believe about a company like Reddit, such as how it will grow, its risks, and opportunities, to a financial forecast and ultimately a fair value.

Rather than relying solely on static metrics, Narratives let investors combine their perspective and assumptions about the company with the actual numbers, resulting in a unique outlook. On Simply Wall St’s platform, Narratives are easy to create and explore, with millions of other investors sharing theirs within the Community page for each stock.

This approach helps you see at a glance whether the fair value you assign to Reddit, based on your Narrative, is above or below the current market price. This makes it simple to decide if the stock is a buy, hold, or sell for you. In addition, Narratives are dynamic; when new news or earnings emerge, your financial story and estimated fair value can update automatically, keeping your analysis relevant and current.

For example, one investor might believe Reddit’s user-driven content and global expansion will send earnings soaring, supporting a price target of $235.00. Another, focusing on regulatory challenges and ad market risks, may set a more cautious target of $75.00. Your Narrative empowers you to align your investment decisions with your personal perspective and the latest available data.

Do you think there's more to the story for Reddit? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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