System1 (SST) Is ‘More Than a Meme’, Will The SST Rally Continue?

Small-cap companies can be hubs of incessant volatility. Yesterday, the digital marketing company System1 (NYSE: SST) was bang in the middle of a trading whirlwind. SST stock has been performing notably well over the past year, but yesterday surged over 100% as investors sunk their teeth into an easy-beat Q4 earnings release.

Over the last month, System 1 stock has gained an impressive 42%, with an annual gain of near-on 100%. Retail buyers have clearly plowed into the stock; earning the company a fanatical price-to-earnings ratio of 66x. This is astronomically higher than the majority of the US market, leading many to believe that this could just be a meme-led rally disconnected from financial reality.

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However, System1’s performance is undoubtedly impressive and does warrant some degree of attention. The company has consistently been growing earnings more than its competition, and investors seem to have strong faith that this will continue in the future.

Benchmark analyst Daniel Kurnos noted the extreme volume of 32M shares following the Q4 earnings release; pointing out the ‘profitability’ view was substantially better than expected. Kurnos believes the company will continue to outperform in 2022 but warns investors that trading might remain volatile “given the limited float”. 

On the contrary, the next three years don’t look so bright for System1. Looking at the company outlook, the dual analysts watching the company estimate earnings to decrease 32% per year; against a market backdrop of 11% annual growth. Investors should trade with caution when it comes to SST shares; as Kurnos pointed out, bouts of volatility are likely to continue. Positive sentiment appears strong, so there is every chance that System1 could extend its rally in the short term. SST is currently trading at a daily loss of 6.6%.