Reddit stock is on the rise — but down votes from Wall Street may have caused investors to hide the stock just as it began its climb.
"What's happening is that Wall Street was caught offsides," Don Vandenbord, chief investment officer at Revere Asset Management, told Investor's Business Daily's "Investing with IBD" podcast. "They had certain expectations," he said. "They were expecting Reddit to lose money on this earnings report."
Reddit Stock's Big Breakthrough
Reddit stock blasted past expectations, reporting $348.4 million in Q3 revenue on Tuesday versus $313.6 million expected. The large-cap firm also announced 16 cents in earnings per share versus an expected net loss of 7 cents and net income of $29.9 million versus an $8 million loss expected, according to Barron's and data from FactSet.
The social media company attributed the positive news to a growing audience. Reddit stock saw gains after recently improving its search engine optimization and restricting its accessibility to favor its own site and apps. The moves have in turn allowed Reddit to show more ads.
Save Post: Watching For Setups Similar To Reddit Stock
Vandenbord says his firm bought Reddit stock after hours yesterday at 96, adding to the position after Wednesday's open at around 105. He looks for big sales growth, because that can lead directly to big earnings growth.
Reddit stock is currently ranked No. 1 in the Internet-Content group and has a healthy Composite Rating of 98, according to IBD Research.
One key is to watch for a day-two higher high, in which a stock closes at a high for the first day, and closes even higher the next day.
Audio Version Of Podcast
Vandenbord says Reddit stock's recent move can be seen in other stocks that have made a significant breakthrough. Following its IPO, shares of Meta stock saw resistance in 2013 after the company announced issues monetizing mobile traffic. However, shares began to climb after Meta announced it had solved that problem. Nvidia stock, meanwhile, also saw a big run in 2023 after announcing AI-specific chips.
Vandenbord also says to look at the story behind the chart. He learned this lesson from IBD founder Bill O'Neil and that's integrated into The IBD Methodology for investing. "You could take a look at two charts, and if you don't know the fundamentals about it, the one that's going to double is the one with the big earnings and sales growth, not the one that has single digits of each," he said.
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