Several Wall Street analysts advised investors to either hold or sell shares of Snap Inc. after the company went public on March 3.
But on Monday, James Cakmak, an analyst at the boutique equity-research firm Monness, gave Snapchat's parent its first "buy" rating.
"We recognize we are potentially giving too much credit for unproven skills in building a business, rather than just a product, but we see more to Snap than many suggest," Cakmak wrote in a note on Monday.
"There is substantial execution risk, but we're prepared to give the benefit of the doubt at this stage knowing what we know about Snap, and knowing what we know about the efforts of competitors."
Snap raised $3.4 billion in the tech industry's largest initial public offering in two years. Investors had to weigh prospects that the disappearing-messaging app's advertising platform could live up to its high valuation.
Cakmak said Snap, which calls itself a camera company, could possibly replace the camera app, and he added that the digital camera had seen little innovation since its invention in 1975.
Cakmak also said that the margins of the company's competitors had most likely peaked and that he saw the company with the potential to grow its revenue seven times as fast as its competitors. Through its licensing agreements, Snapchat does a better job of meeting publishers' needs than its peers, he added. He said Bitmoji, the set of emoji users can customize, was an underappreciated area of Snapchat's user data.
Cakmak has a price target of $25 on Snap's stock, which gained 2% to nearly $20 in premarket trading on Monday. Shares plunged 11% last week toward the IPO price of $17 as traders loaded up on bets against the company. Short interest in the stock has surged to more than 30 million shares, making up about 15.4% of the shares available for trading, according to data provided by the analytics firm S3 Partners.
Before Monday, Snap had no "buy" ratings, five "hold" ratings, and six "sells" according to Bloomberg.
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