What a time it’s been for Reddit. In the past six months alone, the company’s stock price has increased by a massive 138%, reaching $173 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now still a good time to buy RDDT? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Is Reddit a Good Business?

Founded in 2005 by two University of Virginia roommates, Reddit (NYSE:RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.

1. Domestic Daily Active Visitors Skyrocket, Fueling Growth Opportunities

As a social network, Reddit generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Reddit’s domestic daily active visitors, a key performance metric for the company, increased by 28.5% annually to 48.2 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

2. Outstanding Long-Term EPS Growth

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Reddit’s full-year EPS flipped from negative to positive over the last two years. This is a good sign and shows it’s at an inflection point.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Reddit’s margin expanded by 33.7 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose by more than its operating profitability. Reddit’s free cash flow margin for the trailing 12 months was 9.3%.

Final Judgment

These are just a few reasons why we're bullish on Reddit, and with the recent rally, the stock trades at 116.2× forward EV-to-EBITDA (or $173 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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