Skillz Inc: Gaming Stock Down 91% but Has Massive Potential

Skillz Stock Unfairly Punished

The selling capitulation has been devastating for many technology growth stocks to the point where I’m now seeing value. Take the example of Skillz Inc (NYSE:SKLZ), a leading e-sports platform provider that allows independent video game developers to publish their games online so players can compete against each other.

While Skillz Inc’s business model is interesting and offers an alternative to the traditional gaming format, the company’s shares have collapsed by 75% this year and a whopping 91% over the past year. The stock traded at $24.88 in June 2021 and $46.30 in February 2021.

SKLZ stock is currently trading below $2.00.

Perhaps I’m missing something, but the stock appears to be priced as if Skillz Inc was facing bankruptcy. The company, however, holds $484.0 million in cash. So, having the capital to grow its business is not the issue. (Source: “Skillz Inc (SKLZ),” Yahoo! Finance, last accessed June 6, 2022.)

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I like Skillz Inc’s business model because the company doesn’t have to develop any games. Instead, outside developers provide the games and receive a share of the revenues from Skillz.

Company insiders have been building up major positions in Skillz stock on price weakness. Over the last six months, insiders added 7.3 million net shares of SKLZ stock. This is an optimistic sign, as insiders have more insight into the company than outsiders do.

Skillz Inc is trading at an attractive 1.7 times its consensus 2023 revenue estimate of $451.2 million. Yet, Skillz stock trades as though the company is a start-up.

Moreover, the stock also trades at 1.3 times lower than its book value.

Massive Potential for SKLZ Stock

Take a look at Skillz Inc’s stock chart below. It shows SKLZ stock breaking out of a sideways accumulation channel in November 2020.

As mentioned earlier, Skillz stock surged to its all-time high of $46.30 in February 2021. However, the following year has been horrendous for shareholders of Skillz Inc.

Breaking below the trendline support around $15.00 and key moving averages in March 2021 led to further selling. SKLZ stock failed to attract any oversold support buying, and it could be at a bottom.

Chart courtesy of StockCharts.com

A rally could drive Skillz stock toward a 50-day moving average of $2.27, followed by a 200-day moving average of $6.47, more than tripling. Above this level is SKLZ stock’s Fibonacci retracement level at $19.05.

Analyst Take

Patience is required when adding Skillz stock to an investment portfolio. Unless the company’s financial situation worsens, SKLZ stock is likely near its low.

What is needed is improvement in the broader market sentiment toward the risk on trade. When this happens, and if there are no major surprises, Skillz Inc’s shareholders could end up being massive winners.