3 Reasons to Buy Reddit Stock in August

July ended with a whimper for Reddit (NYSE: RDDT) investors. Shares of the company behind the popular "community of communities" platform plummeted 21% on Friday, following a poorly received financial update.

It's the latest step down for the fast-growing forum developer. Shares of Reddit have now fallen 39% in 2026. Momentum is clearly not on its side, but last month's pessimism can be this month's opportunity. Let's go over some of the reasons now might be a good time to consider buying a piece of Reddit.

Image source: Getty Images.

1. The stock has never been as cheap as it is right now

I won't take the listicle route and bury the lede. The biggest reason to warm up to a cold Reddit right now is the compelling valuation. Arguing that Reddit stock has never been cheaper than it is today may have you calling for a price check at first. The company went public at $34 in early 2024. Even after its recent swoon, the shares still closed just above $140 on Friday. How can it be trading at a historically low valuation right now?

The short story is that the company's fundamentals have outpaced the stock's quadrupling through its first 28 months of trading. Its business model has been upgraded in a few ways. Reddit increased its top line by 20% in 2023 as it filed to go public, and now it has posted revenue growth north of 60% for eight consecutive quarters. Its growth rate has tripled. Its actual revenue has more than tripled.

This great growth story gets even better on the bottom line. Reddit wasn't profitable when it went public in the spring of 2024. It has become a cash cow with scalability and new revenue streams, delivering explosive earnings results.

Revenue rose 61% in Reddit's latest quarter. Net income, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and free cash flow more than doubled. How much would you pay for a company growing at those rates? Discount a fair amount to account for the grim reality that it's not sustainable for the long haul. Are you there? Good. Where are you at in terms of an earnings multiple that makes you comfortable owning a piece of Redding in August?

The chart that follows is probably going to surprise you. The purple line shows Reddit's price action since it went public in March 2024. The orange line shows Reddit trading at less than 19 times what analysts expect it to earn over the next four quarters. It has never been this low. The blue line shows Reddit trading at less than 15 times what Wall Street pros expect it to earn a year later.

Image source: YCharts.

2. There are many paths that lead to victory

The stock's historically cheap valuation isn't the only bullish argument worth making. Take a look at how the model has evolved over time. A few years ago, the forum seemed impossible to monetize. The moderators and users who generate valuable content would push back when Reddit tried to ramp up advertising, but revenue has jumped tenfold over the past five years.

It's not just advertising that's getting the job done. Reddit now also has a premium tier through which folks can pay $5.99 a month for an ad-free experience and other upgrades. It also has data licensing deals with a couple of major AI platforms to help train and ground their models. The revenue streams outside of advertising currently account for just 5% of its business, but that could widen over time.

Reddit's also a global phenomenon, consumed largely by folks outside the U.S., with international users accounting for 59% of the daily active uniques. But despite the massive worldwide audience, less than 21% of its revenue is currently being generated by international users. Average revenue per user overseas will understandably be lower than its stateside audience, but the gap could narrow over time.

3. The knocks are overblown

Reddit posted "beat and raise" numbers, but the stock was beaten and razed. It wasn't a perfect report, but with the stock already trading lower in recent months, it didn't have to be.

Reddit announced that it will stop reporting the breakdown of logged-in and logged-out daily active users starting in the current quarter. Investors don't take kindly to seeing a metric measuring a company's success go away, but there will continue to be plenty of granularity on usage and performance.

There was a slight sequential dip in U.S. daily active uniques, prompting some analysts to worry about search-referral headwinds, but the overall business continues to grow at a blistering pace. Even Reddit's guidance for the new quarter, calling for 47% to 49% growth, is higher than the 43% to 45% it was targeting for the second quarter three months ago. It still managed to exceed 60% top-line growth.

As worrywarts make mountains out of small revenue-mix molehills like AI data licensing renewals, Reddit's overall business continues to thrive. You don't bet against a company that's winning even when the stock chart is losing. Some savvy investors call the disconnect an opportunity.

Rick Munarriz has positions in Reddit. The Motley Fool has positions in and recommends Reddit. The Motley Fool has a disclosure policy.