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Snap stock (SNAP) is trading higher Friday after JMP Securities analyst Ronald Josey upped his rating on the social networking companys shares to Market Outperform from Market Perform, setting a price target of $20, well above yesterdays close at $14.45.

We are incrementally confident in Snaps ability to grow its user base, increase engagement given newer products and services, and improve overall monetization as the service attracts more advertisers and share of ad budgets, Josey writes in a research note.

He adds that the company is now more stable than it was when entering 2019, and as we look into 2020, we believe Snap is well positioned to continue to add [users] and close the monetization gap with other major social networks as its sales force reorg is now behind it and the company launches new and innovative advertising products.

Josey concedes that the stock looks more expensive than rivals, trading at 7.5 times enterprise value to estimated 2021 revenue. But he adds that Snap is operating and executing better, which should lead to continued revenue growth and improving overall profitability going forward. And he thinks the valuation can go higher still; his price target is based on a multiple of 10 times estimated revenue.

Josey points out that Snap reaches 90% of 13- to 24-year-olds, with 210 million daily active users globally.

We justify our valuation multiple given Snaps highly engaged audience of 13- to 24-year-olds (who are increasingly difficult to reach through traditional media), improved sales execution and ad formats, and ramping profitability, he writes. All this as the broader online advertising market continues to take share of traditional ads and Snap is one of the few platforms that we believe can take advantage of this transition.

Snap stock was up 2.3% to $14.79 in recent trading.

Write to Eric J. Savitz at eric.savitz@barrons.com

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Snap Stock Is Rallying. An Analyst Says Its Expensive But Could Go Even Higher. - Barron's