Following a 120% surge from its IPO price, Reddit’s market journey sparks debate among investors about its potential as a buy.

Reddit’s introduction to the New York Stock Exchange was nothing short of spectacular, with shares skyrocketing by more than 120% from their initial offering price since the March 21 debut. This impressive performance raises the question: is Reddit stock a viable investment in the current stock market landscape?

Recently, Reddit stock has stabilized around the $45 price level, showcasing the typical volatility associated with new stock listings. Despite this, the shares are currently over 30% below their post-IPO peak, having previously dropped by as much as 41%. Midday Wednesday saw Reddit stock decline by 5.5%, nearing its recent low points.

The IPO was a significant moment for Reddit, with shares climbing as high as 70% above the $34 offering price on the day of listing. The closing price of $50.31, up 48%, valued Reddit at approximately $6.4 billion and raised $748 million.

Reddit, established in 2005, stands as one of the most significant online platforms globally, boasting over 1 billion cumulative posts across 100,000 active communities. Despite a 21% increase in sales to $804 million in the previous year, Reddit reported a loss of about $91 million in 2023 and has yet to achieve profitability. Reddit’s CEO, Steve Huffman, in a CNBC interview, expressed optimism about the company’s profitability in the latter half of 2023 and its revenue growth outpacing costs.

Analyzing Reddit’s stock technically reveals a middling IBD Composite Rating of 51 out of 99, primarily due to the company’s losses and its brief, tumultuous trading history. Reddit has yet to establish a proper base, which could potentially form an IPO base in the upcoming weeks.

The concept of an IPO base is relatively straightforward, typically not exceeding a 20% decline from peak to low, with a duration shorter than five weeks. The pattern usually commences within 25 days of trading, with the buy point identified by the prior high. Investors need to monitor these patterns closely.

Furthermore, recent disclosures reveal significant share sales by Reddit’s top executives and board members, including CEO Steve Huffman, which totalled $41.245 million in sold shares. This move has added another layer of consideration for potential investors.

Given the current circumstances, Reddit stock does not present a buying opportunity. Investors are advised to await the formation of a new base, which could provide a more solid foundation for investment decisions. As the market evolves, staying informed with IBD’s analysis and stock lists can help identify leading stocks and potential buy points.