Almost eight months after Snap Inc.'s initial public offering, CNBC's Jim Cramer wondered if the beleaguered social media company could be getting its groove back.
After coming public at $17 a share in March, Snap's stock hit its peak of $29.44 on its second day of trading before starting a long journey down. The stock bottomed in mid-August at $11.28.
"But now, the situation's starting to get different," the "Mad Money" host said. "Almost all the hype surrounding Snap has dissipated, the enthusiasm surrounding the stock has completely vanished, and even though the share price has been steadily working its way higher since the August lows, the recent strength's gotten very little attention."
Shares of Snap have, indeed, rallied over 30 percent since its all-time lows in August. As the stock stabilizes ahead of Snap's third-quarter earnings report on Nov. 7, Cramer asked the question many investors want answered: has Snap become a worthy investment?
First, the "Mad Money" host reviewed Snap's short, yet arduous history as a public company. Soon after its hyped-up IPO, analysts and investors realized the stock was far too expensive, causing a drastic sell-off.
Then, in May, Snap issued its first quarterly earnings results, in which the company reported a $2.2 billion net loss related to IPO costs, slower-than-expected user growth and missed expectations across the board. The stock shed 20 percent of its value in response.
By Snap's second earnings report in August, the photo-sharing app's stock had been downgraded by Morgan Stanley, its lead underwriter on the IPO.
Again, the company issued an earnings miss, with fewer daily active users than expected and losses to the tune of $443 million. The next day, Snap shares fell by 14 percent to just over $11. But the stock managed to rebound, ending the day at $12.60 a share.
Even with the rebound, Cramer still wasn't convinced that Snap could pare its under-performance. In 2016, its revenue grew by 589 percent.
"Those numbers were always going to have to decelerate, but they slowed faster than investors had hoped," Cramer said. "In the latest quarters, Snap delivered 286 percent and 153 percent revenue growth respectively, and while that's terrific in absolute terms, it was weaker than Wall Street had been expecting."
Snap's management is also burning through cash due to stock-based compensation costs in the first quarter and marketing, research and development and operational costs in the second. Moreover, average revenue per user has barely budged since the fourth quarter of 2016.
"Nobody had any idea when Snap would be profitable at the time of the IPO. If anything, it's just more murky now," the "Mad Money" host said.
As the Snapchat parent gears up to report its third quarter, Cramer has two chief concerns that won't be deterred by even fantastic numbers.
First, Cramer said Snap's stock — which closed on Monday at $15.68 a share — is expensive. It trades at 12 times next year's sales estimates, which are lofty compared to competitors like Facebook and may be too high.
Second, Snap's lockup expiration turned out to be less dire than expected, which means major shareholders could be holding on to their stock and waiting for a better exit point.
"Bottom line? Snap's stock may have stabilized, but I think it's still too soon to give this one our blessing as an investment," Cramer concluded. "I'm just not wild about the risk-reward here until we get more signs that management knows what they need to do to turn the company around. I remain open-minded and I want to believe, but my discipline tells me it's soon to recommend the stock of Snap."
Disclosure: Cramer's charitable trust owns shares of Facebook.