Spotify (SPOT) sent ripples throughout the stock market this morning after surprising everyone with its first quarterly profit in the past year while analysts were expecting a loss.

The Sweden-based streaming service grew sales by 17% year over year, reporting a figure that equates to $3.57 billion – just narrowly outperforming the analyst consensus of $3.53 billion. This resulted in a profit of right around 33 European cents per share – compared to the 22-cent loss that analysts were forecasting.

Much of this can be attributed to cost-cutting measures, including layoffs of hundreds of employees at the start of the year. Meanwhile, the company raised its premium subscription prices to further boost profitability. 

Subscribers also grew in the quarter as Spotify added 6 million premium subscribers compared to the goal of 4 million. Monthly active users of 574 million and premium subscribership of 226 million were also overperformances compared to the expectation. 

The goal for Spotify is to achieve a gross margin between 30-35%. While finally turning a profit is a great start, the margin came in at just 26.4% for Spotify in the third quarter – so there is still work to be done. 

Executives with the company expect this figure to keep climbing higher and higher through 2024. That being said, analysts are skeptical that the company will ever achieve margins this high.  

Speaking of the future, Spotify expects to continue improving in the final quarter of the year. The company issued guidance of €37 million in operating profit on €3.7 billion in revenue. 

The tide appears to be turning for this company, and analysts like Jeffrey Wlodarczak with Pivotal Research Group are taking note. He raised his price target from $140 to $170. The stock currently sits at right around $170 after gaining 10% in Tuesday morning’s trading session.

Spotify has now made huge strides in the last year, up 90% in that timeframe. So, is it time to buy this stock? Not so fast. We’ve uncovered a few reasons you may want to hold off on buying SPOT for the time being through the VectorVest stock forecasting software…

SPOT Has Fair Safety and Very Good Timing, But it Also Has Very Poor Upside Potential…

VectorVest simplifies your trading strategy through a tried-and-true proprietary stock-rating system. You’re given all the insights you need to make clear, calculated, emotionless decisions in 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).

Each rating sits on an easy-to-interpret scale of 0.00-2.00 with 1.00 being the average. Better yet, you’re given a clear buy, sell, or hold recommendation based on the overall VST rating for any given stock, at any given time. That being said, here’s what we found for SPOT:

  • Vert Poor Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (forecasted 3 years out) to AAA corporate bond rates and risk. It’s a far superior indicator than a simple comparison of price to value alone. As for SPOT, the RV rating of 0.36 is very poor. The stock is overvalued with a current value of just $15.71.
  • Fair Safety: SPOT is a fairly safe stock as indicated by the RS rating of 0.88 - which is a bit below the average. This rating is calculated from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, price vitality, and other factors.
  • Very Good Timing: The RT rating of 1.37 reflects the strong price trend that is pushing SPOT higher and higher. It’s based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.

The overall VST rating of 1.01 is slightly above the average and deemed fair - so where does that leave current investors or prospective traders? 

VectorVest has placed a HOLD recommendation on this stock for the time being. You can learn more about the current situation with SPOT or how the VectorVest system works with a free stock analysis today!

Want These Types of Insights at Your Fingertips so You Can Win More Trades?

Use VectorVest to analyze any stock free. VectorVest is the only stock analysis tool and portfolio management system that analyzes, ranks and graphs over 18,000 stocks each day for value, safety, and timing and gives a clear buy, sell or hold rating on every stock, every day.

VectorVest advocates buying safe, undervalued stocks, rising in price. SPOT jumped 10% after reporting its first quarterly profit in more than a year. The stock may be on the right track with very good timing and fair safety, but it is still rated a HOLD due to very poor upside potential.

Before you invest, check VectorVest! Click here to ANALYZE ANY STOCK FREE and see our system in action!