3 Reasons We're Fans of Reddit (RDDT)

Even during a down period for the markets, Reddit has gone against the grain, climbing to $107.51. Its shares have yielded a 38.4% return over the last six months, beating the S&P 500 by 45.3%. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now still a good time to buy RDDT? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Are We Positive On Reddit?

Founded in 2005 by two University of Virginia roommates, Reddit (NYSE:RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.

1. Domestic Daily Active Visitors Skyrocket, Fueling Growth Opportunities

As a social network, Reddit generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Reddit’s domestic daily active visitors, a key performance metric for the company, increased by 31.7% annually to 48 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

2. Outstanding Long-Term EPS Growth

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Reddit’s full-year EPS flipped from negative to positive over the last two years. This is a good sign and shows it’s at an inflection point.

3. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Reddit’s margin expanded by 43.9 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Reddit’s free cash flow margin for the trailing 12 months was 16.6%.

Final Judgment

These are just a few reasons why we're bullish on Reddit, and with its shares topping the market in recent months, the stock trades at 39× forward EV-to-EBITDA (or $107.51 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More Than Reddit

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.