Shares of Snap get a boost from first ‘buy’ rating

Snap Inc.’s stock rose Monday after receiving its first “buy” rating from a Wall Street analyst, providing some relief from a downward trend.

Trading in the company behind the Snapchat app began with a bang March 2. When the shares hit the New York Stock Exchange that day, they opened at $24, more than 40% above the initial public offering price of $17.

The shares rose as high as $29.44 on the second day of trading, but began to decline steadily after that as analyst after analyst issued “sell,” “underperform” and “hold” ratings. Midday Friday, the stock hit a low of $18.90.

That trend saw a reversal Monday, when James Cakmak, an analyst with Monness, Crespi, Hardt & Co., issued a “buy” rating for the stock and gave it a target price of $25. Snap shares rose 2% to $19.93.

“We recognize we are potentially giving too much credit for unproven skills in building a business, rather than just a product,” Cakmak wrote in a note to investors, “but we see more to Snap than many suggest.”

Cakmak cited Snap’s camera innovations, focus on curated video and publishing model — “resulting in more premium experiences through the licensing of content” — among the company’s assets. He also said he expected high user and revenue growth, estimating the company would expand its user base tenfold in the next three years.

By contrast, several analysts who initiated coverage of the stock shortly after it began trading said Snap was overvalued, setting target prices of $10 to $23. Those analysts argued that the company has high costs, faces stiff competition for ad dollars and users from companies such as Facebook Inc. and has limited potential for growth.