It will probably be a bumpy ride in coming months.
Shares of social media platform Reddit (RDDT 0.15%) went up 17.8% in June, according to data provided by S&P Global Market Intelligence.
It was an interesting month for sure, considering there wasn’t much news to report. But the company only went public back in March. And it can take several months of trading to settle down.
The reason for this is investors and analysts are still trying to figure what they believe the business is worth. For example, Needham analyst Laura Martin raised her price target for Reddit stock to $75 per share on June 18, according to The Fly.
For perspective, Martin’s price target had already been raised to $63 per share just back in May. Reddit’s business didn’t improve that drastically in that short of a time period. It’s just early in Reddit’s history as a publicly traded company, and it’s still a time of price discovery.
Other analysts were upbeat about Reddit stock during June as well, and this partly contributed to its gains.
Investors are trying to figure out a price too
It’s not just Wall Street analysts looking for Reddit’s value. Retail investors are trying to figure it out too.
Further complicating things during June was a resurgence in what’s called meme-stock investing — trading based on buzz from social media. Reddit is a platform that’s often used to discuss stock ideas. And several buzzy names were soaring higher during June, likely adding to the buzz for Reddit stock as well.
What’s a level-headed investor to do?
Spoiler alert: Reddit stock will likely have other big monthly moves in the near term, but they probably won’t all be positive. It’s normal for stocks to bounce around for the first couple of years after an initial public offering (IPO). Trading volatility comes with the territory.
Investing great Peter Lynch said, “The real key to making money in stocks is not to get scared out of them.” Volatility can be scary, so Reddit investors will want to maintain calm. And the best way to do that is to develop a strong investment thesis — a summary of the fundamental reasons why a business can become more valuable over time.
For Reddit, it makes money off of its users through advertising. Therefore, it can make more money with more users, users spending more time on the platform, and by improving its advertising tools so it can charge higher rates. If someone has a solid handle on fundamental aspects of the business such as these, they can confidently hold on to their shares even while the stock bounces up and down.
A thorough investment thesis for Reddit can’t be given here, but there is reason for some optimism. In the first quarter of 2024, the platform had record user traffic. And recent partnerships, including one with OpenAI, can help drive more traffic to the platform.
This is the sort of thing that level-headed investors should be thinking about more than the daily ups and downs with Reddit’s stock price.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
