Snap Share Price Slides 31% as New Partnerships Spark Valuation Debate

• Have you ever wondered if Snap’s beaten-down stock is a hidden bargain or just a value trap? You are not alone, and that question is worth exploring.
• Despite a tough year with shares down 31.7% year-to-date and 35.0% over the last 12 months, Snap remains on investors’ watchlists for its potential to recover or decline further.
• Recent headlines about Snap have focused on its evolving content partnerships and ongoing investments in augmented reality features. These developments are fueling a debate about whether the company’s core business is poised for a turnaround or still faces significant challenges. Industry watchers are monitoring these changes closely as they consider Snap’s future market position.
• On valuation, Snap scores a 4 out of 6 across our undervaluation checks. We will break down how Snap fares across key valuation methods, and discuss different ways to think about value in this case.

Find out why Snap's -35.0% return over the last year is lagging behind its peers.

Approach 1: Snap Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates the worth of a business by projecting its future cash flows and discounting them back to today's value. For Snap, this approach helps determine what the company's stock could be worth based on expected future performance rather than just current profits.

Snap's latest reported Free Cash Flow stands at $390.4 Million. Analyst estimates, combined with further projections, suggest this number could grow steadily each year. By 2029, Snap is forecasted to generate $1.17 Billion in Free Cash Flow. After that, additional projections anticipate ongoing growth, but these estimates become less certain and are based on historical trends.

After discounting all projected cash flows to their present value using a 2 Stage Free Cash Flow to Equity model, the resulting intrinsic value for Snap shares is $13.03. This figure suggests Snap stock is currently trading at a 41.1% discount compared to its projected fair value.

In other words, according to this DCF model, Snap's shares are considered primarily undervalued and may provide opportunity for investors who have confidence in its turnaround story.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Snap is undervalued by 41.1%. Track this in your watchlist or portfolio, or discover 921 more undervalued stocks based on cash flows.

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

Approach 2: Snap Price vs Sales

Using the Price-to-Sales (P/S) ratio as a valuation metric is especially useful for companies like Snap that are not currently profitable. Unlike earnings-based multiples, the P/S ratio provides insight into how the market values every dollar of revenue. This makes it relevant for growth-focused businesses where profits may not yet be consistent, but sales growth remains strong.

Growth expectations and company risk play key roles in determining what counts as a "normal" or "fair" P/S ratio. A business with high revenue growth might justify a higher multiple, while those facing greater risks or slowing momentum should trade closer to or below the industry average.

Snap currently trades at a P/S ratio of 2.29x. This is just below the peer group average of 2.85x and above the Interactive Media and Services industry average of 1.02x. However, direct comparisons can be misleading since they may not account for company-specific growth rates or risk profiles.

Simply Wall St's proprietary "Fair Ratio" is designed to address this. It calculates the multiple Snap should trade at, considering expected earnings growth, margin trends, risk factors, industry dynamics, and market size. For Snap, the Fair Ratio is 2.72x, suggesting where the stock ought to trade given its outlook and competitive landscape. This holistic approach provides a more precise valuation anchor than simply comparing with peers or industry averages.

Since Snap's current P/S multiple is slightly below its Fair Ratio, it appears the stock may be modestly undervalued based on this measure.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1438 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. Let’s introduce you to Narratives. A Narrative is a simple yet powerful way for you to connect your perspective on a company, such as what drives its future growth, evolving risks, and upcoming catalysts, to a financial forecast and ultimately an estimated fair value.

Rather than just relying on numbers alone, Narratives help you articulate the story behind your valuation assumptions. This makes it easier to clarify your reasoning and share it with fellow investors. Narratives are built into Simply Wall St’s Community page, where millions of investors use them to debate and refine their perspectives in real time.

With a Narrative, you can instantly see how your view of the business translates to an updated fair value for Snap, then compare that to the current share price. This helps you decide when to buy, hold, or sell. Narratives automatically update if critical news or fresh results come in, ensuring your investment view remains informed and dynamic.

For example, one investor might see Snap’s expanding augmented reality ecosystem and margin-boosting revenue streams, projecting a fair value near $16. Another, concerned about competition and slow user growth, might land as low as $7. This shows how your Narrative directly shapes your investment action.

Do you think there's more to the story for Snap? Head over to our Community to see what others are saying!

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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