Hedgeye's 'Fundamental Short, Grossly Overvalued' Call On Reddit Stock Sends It Plummeting: What Lies Ahead?

Reddit Inc. RDDT is facing its steepest decline since its initial public offering.

Hedgeye Risk Management issued a bearish report suggesting a significant downturn for Reddit shares, projecting a staggering 50% drop below current levels.

Redditor EchoInTheHoller via post at r/stocks, brought to light the fact:

Reddit Tumbles After Hedgeye Names It a Short Idea and Sees 50% Slump

The stock’s trajectory marked a notable plunge of up to 15% on Wednesday, March 27, hitting its lowest level since March 22.

This abrupt downturn comes in stark contrast to the euphoria surrounding Reddit’s IPO on March 21, where it skyrocketed by 48%.

Also Read: What’s Going On With Reddit Stock?

“The stock is a fundamental short, grossly overvalued, and should trade closer to its IPO price of $34, reflecting about 50% downside from Tuesday’s close,” Hedgeye analyst Andrew Freedman said.

Despite the initial momentum witnessed post-IPO, Hedgeye’s short idea has cast a shadow over Reddit’s valuation. This has ignited discussions about the sustainability of its meteoric rise.

Reddit’s first-quarter 2024 results at the end of May are now anticipated with bated breath. While early indicators suggest positive momentum, apprehensions loom regarding potential weaknesses in future reports.

Responses from Reddit users reflect a mix of sentiments. Some express skepticism towards Hedgeye’s track record, highlighting the organization’s reluctance to release statistics on their calls.

Others acknowledge the risks associated with shorting a stock like Reddit, citing its low float and the potential for a short squeeze.

As investors navigate through this volatile period, the focus shifts to Reddit’s performance in the coming quarters. Whether the company can defy Hedgeye’s grim prognosis and regain its upward momentum, remains to be seen.

Benzinga reached out to Reddit for a reaction, but has not heard back.

Read Next: Tesla Investor Ross Gerber Questions Reddit’s Business Model: ‘Isn’t This Really A Tech Non Profit?’

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