Skillz Stock Is Still Years Away From Its True Payoff Moment

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Skillz (NYSE:SKLZ) stock looked as if it was kicking off a comeback at the close of August.

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“Meme stock” traders dived back into the mobile gaming play between Aug. 30 and Sept 7, but as of this writing, Skillz stock starting to give up these recent gains.

It is possible that a short squeeze, or a third “meme stock wave” could give SKLZ the same sort of boost it received back in May and June.

As you may recall, after falling to prices as low as $12.40 per share after the first “wave,” it zoomed back to nearly $25 per share during the second “wave.”

There’s a big downside, though. If the market corrects this richly-priced growth stock could be one of the hardest hit.

As I wrote a few weeks back, shares could fall more than 50% if there’s a shift from a bull to a bear market. Whether from the company stumbling, the markets correcting or a combination of both.

In terms of its long-term prospects, I remain bullish. The conly caveat is that between now and when it really starts to take off, chances are either company hiccups or a stock market maelstrom will knock it into the single-digits.

If you’re looking for a short-term trade, there’s merit in buying in now.

If you see this as a long-term bet on the future of gaming, taking your time may be the way to go.

SKLZ Stock in the Short-Term

There’s plenty in play to send Skillz shares in either direction. With about 19% of its outstanding float sold short, any sort of positive news, or even just renewed hype from the Reddit trading community, could help send the stock back up to prior price levels.

Maybe not to the $40+ per share levels SKLZ stock hit back in February, but a move back to $15-$25 per share could be attainable. On the flip side, though, factors that negatively affect its valuation could send it tumbling in the wrong direction.

For now, shares can maintain their current valuation (forward price-to-sales, or P/S, ratio of around 8.4x). That’s due to its status as a high-growth stock, as well as the market still being willing to pay up for growth plays, but this could all change.

Underwhelming results in the coming quarters could affect its forward multiple.

As our Chris Lau recently wrote, if Skillz ceases to be a strong growth story, investors may find another mobile gaming play, Zynga (NASDAQ:ZNGA), more appealing.

In turn, this stock’s valuation could fall to a level on par with this peer. Zynga today trades for a forward P/S ratio of around 3x. If high growth remains on the menu, but the market corrects, this stock could still see a high double-digit decline because of valuation compression.

Shares could fall more than 50% and still be priced at a premium to its more mature publicly traded rival.

A Better Opportunity to Buy Could Arise Prior to Liftoff

Depending on your risk appetite and your personal view of the market’s next direction, you may find buying SKLZ stock today as a trade worthwhile.

But what if you’re looking at it more as a long-term investment? This remains an opportunity to keep on your radar. Playing the waiting game could enable you to get in at a much better entry point.

If you’re looking to buy Skillz for the potential for it to climb back to $30, $40, or even to levels above its all-time high of $46.30 per share, patience is key. As discussed above, the company has many things in motion that could result in it living up to its potential.

The Aarki acquisition, the Exit Games partnership and now the deal to bring Trivia Crack onto its platform bode well for revenue/user growth in the years ahead. However, big success is not going to happen immediately. The company remains years away from turning its real money competition-based platform into a highly profitable business.

In the meantime, if company hiccups and/or a market correction happens, SKLZ stock could make a move down to single-digit prices. At these lower levels, consider it a great time to buy ahead of it zooming to a level many times that of your purchase price.

Long-Term Investors Should Wait and See With Skillz

Traders bullish that correction fears are overblown may find buying now to be worthwhile. A short-squeeze or another “meme stock wave” may send it soaring again.

Long-term investors able to handle possible volatility ahead find appeal in buying today as well. However, taking one’s time could be the better move.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.