Is Snap Set for a Comeback After TikTok’s U.S. Split News?

If you have been watching Snap lately, you are not alone. Investors are buzzing about what to do with this once high-flying social media stock, especially with all the recent commotion around TikTok's future in the U.S. After a rough start to the year, Snap's share price has managed to claw back some ground, posting a 1.3% gain over the last week and an impressive 18.3% jump in the past month. That kind of rally definitely raises eyebrows, especially when you look at the fact that shares are still down a whopping 26.4% year-to-date.

So what is driving this recent upswing? Part of it has to do with fresh news about TikTok potentially being split up and controlled more closely by U.S. entities. For competitors like Snap, anything that throws uncertainty at a major rival can reframe the whole industry. Investors may be rethinking how much risk Snap faces and what kind of growth potential it might have in a shifting landscape. While Snap’s five-year return still looks rough at negative 69.0%, the resilience in recent weeks suggests investors see more to the story.

Now, if you are the type who wants numbers before making a move, consider this: Snap scores a 4 out of 6 on our latest undervaluation checks. That means the company looks undervalued in four different ways according to standard valuation screens, which is no small feat after the stock's topsy-turvy ride.

But valuation can be more of an art than a science. So let’s dig into the main ways analysts size up what Snap is really worth. Stick around, because at the end, I will share a perspective that might trump all the usual methods.

Why Snap is lagging behind its peers

Approach 1: Snap Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) analysis forecasts a company’s future cash flows and then discounts these amounts back to their value today. This gives investors a sense of the company’s true worth by looking beyond the headlines to the hard numbers.

For Snap, the latest model uses a 2-stage Free Cash Flow to Equity approach. Right now, Snap’s last twelve months free cash flow sits at $365 million. Analysts provide cash flow projections for the years ahead, estimating that Snap could reach around $1.43 billion in free cash flow by 2029. Beyond the five-year analyst window, further projections are extrapolated, but the underlying story is a company expected to grow its ability to generate cash well into the next decade.

Discounting all those future cash flows back to today gives an estimated intrinsic value per share of $18.90. This is a 56.2% discount compared to the current market price. According to this DCF model, Snap is significantly undervalued.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Snap is undervalued by 56.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Snap Price vs Sales

For companies like Snap, which are not yet consistently profitable, the Price-to-Sales (P/S) ratio is often the most useful valuation tool. This ratio helps investors gauge how much the market is valuing Snap’s top-line revenue, making it particularly fitting for high-growth, tech-driven businesses where profits may be further down the road.

The “right” P/S multiple depends on growth expectations and business risk. The faster a company is growing and the more defensible its business, the higher a fair P/S ratio typically is. On the flipside, high uncertainty or weak sales growth should translate into a lower P/S multiple.

Snap’s current P/S ratio stands at 2.48x. That stacks up below the peer average of 3.35x and above the wider Interactive Media and Services industry average of 1.37x. However, these broad market comparisons can miss important details about Snap’s growth outlook, market position, and risk profile.

This is where Simply Wall St’s Fair Ratio comes in. The Fair Ratio, calculated as 2.67x for Snap, accounts for factors like the company’s revenue growth, industry, profit margins, scale, and unique business risks. It is designed to offer a more nuanced yardstick than simply comparing to the averages.

With Snap’s current P/S multiple of 2.48x coming in slightly below its Fair Ratio of 2.67x, shares look fairly valued on this measure.

Result: ABOUT RIGHT

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 Snap Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives.

A Narrative is simply your story about a company, connecting your own perspective or conviction to hard financial forecasts and finally to fair value. Instead of relying only on numbers or consensus opinions, Narratives allow you to articulate why you think Snap could thrive or struggle, link those beliefs to your estimates of future revenue, earnings, and margins, and see what price you believe is fair.

On Simply Wall St’s Community page, millions of investors can easily create and update Narratives, making this tool accessible to everyone. By comparing the Fair Value from your Narrative with Snap’s current share price, you can decide whether to buy, hold, or sell based on your own convictions, not just the broad market view.

The best part is that Narratives are dynamic. When new news or earnings reports drop, your fair value and forecasts can be refreshed instantly, keeping your analysis up to date.

For example, some Snap investors see Snap as a high-potential AR leader and estimate a fair value as high as $16.00, while cautious investors focused on competition and losses may peg it as low as $7.00. Your chosen Narrative puts you in control.

Do you think there's more to the story for Snap? 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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