Wait for a Dip Before Buying Support.com Stock

Among the “meme stocks,” there have been many potential short-squeeze plays that never quite panned out. Support.com (NASDAQ:SPRT) stock, however,  did actually get squeezed much higher.

In August, the company’s shares  surged from $8 to as much as $59.69 per share. Since then, however, SPRT stock has slid lower. But it is still well above the range in which had traded before its explosive rally.

SPRT stockSource: Mark Agnor / Shutterstock.com

Support.com’s shares have been very profitable for those who bought the stock after the company  announced  its reverse merger with Bitcoin (CCC:BTC-USD) mining company Greenidge Generation.

And investors who owned SPRT stock since it was a value stock on its last legs are sitting on ten-fold gains. Some of those who got into it when it fell to around $1 per share in 2020 have twenty-fold paper profits right now!

That’s great for those who bought the name early. But for investors who are just starting to consider purchasing the shares now, a buying opportunity may arise. The shares, however, aren’t worth buying at today’s prices.

As I’ve discussed in previous columns, Support.com may be the best crypto mining stock out there.

At today’s prices, however, much of its  positive attributes are already priced into the shares. Some may believe that the stock will hold steady or surge higher as Bitcoin prices climb. However, I think that the stock will continue to drift back toward its prior levels.

SPRT Stock and Its Epic Short Squeeze

Last month, before Support.com went on its latest epic run, I listed it along with six other names that seemed ready to make short-selling hedge funds cry. Of the seven stocks that I included in that article, SPRT stock is the only one that delivered on its potential so far.

It was able to come through not just due to its high short interest, which as of Aug 13 stood at 67%. The comeback of crypto prices, which kicked off in late July, was a factor in the surge. And the fact that only 24.24 million shares of the stock are currently outstanding likely played a role as well.

Given the huge enthusiasm for Support.com among the Reddit crowd, it’s no surprise that it joined the ranks of “meme stock” legends like AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME).

Unfortunately, the easy money in SPRT stock has already been made . Some may want to chase the shares today, hoping they climb back towards last month’s stunning high of nearly $60 per share. But, as I wrote earlier, buying the shares today may not be a good move. Although the underlying company has advantages over its publicly-traded peers, the price of the shares isn’t right.

Support.com Stock Is Overvalued

For long-term investors, SPRT stock may be the best Bitcoin mining play out there. The shares were one of the best short-squeeze plays when they traded for less than $8 per share. But at $20, that’s not true anymore.

It goes without saying that Support.com is a better opportunity than sketchy SOS  (NYSE:SOS), which has many red flags. Marathon Digital (NASDAQ:MARA), and Riot Blockchain (NASDAQ:RIOT) may not have the same kinds of issues as SOS. But Greenridge’s advantages include ownership of its electrical power source,  and Support.com brings significant advantages to the table like net operating losses (NOLs), that can shelter its future profits from taxation.

Based on the terms of the merger, however, the current shareholders of this stock will own 7.7% of the combined company. Consequently, the implied valuation of this Bitcoin mining play is around $6.1 billion.

In March, the company anticipated that it would generate as much as $162 million of EBITDA in 2022, based on Bitcoin prices of around $49,000.

For the valuation of SPRT stock  to make sense again, Bitcoin needs to soar, Greenridge must quickly ramp up its capacity, or the stock needs to retreat to a price in line with its projected results for next year.

The Bottom Line

SPRT stock may be worthwhile as a long-term bet on the crypto mining industry. But wait for a significant pullback before pulling the trigger on this name.

On the date of publication, Thomas Niel held a long position in Bitcoin. He did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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