Should You Buy Pandora Media (P) Stock On The Dip?

After another crazy day of trading for Pandora Media (NYSE:P) , shares of the internet radio pioneer closed about 1% higher on Tuesday. As investors continue to digest the company’s new investment deal with SiriusXM (NASDAQ:SIRI) , it looks like we could be in store for continued volatility.

Overall, the stock has slumped over the past few weeks, and it now sits comfortably near its 52-week low. Of course, now—especially considering the renewed attention on the company—many investors may be starting to feel that Pandora is entering into “oversold” territory.

So should you buy Pandora stock on the dip, or has the stock rightfully been sold-off because of its inherent weakness? Let’s dig into some of its fundamentals first:

As we can see, Pandora is displaying a VGM grade of “C,” which means several of its key fundamental metrics are relatively mediocre. The stock is currently sporting an “F” for Value, primarily because its lack of profits has dragged down several of its key value-related ratios—especially compared to its “Internet-Services” industry peers.

One fundamental metric to note, however, is the company’s P/S ratio of 1.20. This ratio is often preferred for young companies that may not be posting profits yet—or firms in the IT sector that may not have many tangible assets. It is certainly encouraging that Pandora is displaying strength here, and it is worth noting that our current consensus estimates call for double-digit revenue growth in both the current and upcoming fiscal year.

Nevertheless, it is understandable that many investors are concerned about the current state of Pandora’s business model. The company’s internet radio concept revolutionized digital music listening, but it was quickly overshadowed by the more personal and customizable platforms of Spotify and Apple’s (NYSE:P) Apple Music.

According to Pandora’s latest earnings report, total active listeners fell from 79.4 million in the first quarter of 2016 to just 76.7 million in the first quarter. However, the company recently launched a Spotify-like platform and it is seeing nice gains in its subscription services segment.

And while that last bit may seem like a great sign for Pandora’s future, every bit of good news about the company seems to be met with another piece of bad news. For example, investors weren’t too excited that Pandora decided to sell its Ticketfly business—a segment it just acquired less than two years ago—for a $250 million loss on Friday.

Also, we should note that Pandora is currently a Zacks Rank #3 (Hold). Remember, the Zacks Rank is heavily influenced by earnings estimate revisions, so let’s check out a quick snapshot of the revision activity we have seen for Pandora recently:

As was the case for Pandora’s fundamental metrics, the company’s estimate revisions have been relatively mediocre. An 83% negative revision agreement, which has sent Pandora’s current-quarter Zacks Consensus Estimate nearly 10 cents lower, is certainly not a good sign, and there is very little encouraging trends to be found here.

Sure, revisions haven’t had much an effect on the company’s full-year earnings outlook, but things do look to be pretty sluggish for the next fiscal year. Is a new partnership with SiriusXM going to be enough to overcome its earnings challenges? How will shedding the profitable ticket servicing unit impact earnings in the long-term? Only time will tell.

But remember, we were also trying to figure out whether Pandora has been oversold. To do that, let’s take a peek at some technical charts that are often used for determining “overbought” or “oversold” status:

As we already know, the stock has been fading for some time, and it now sits at its lowest levels in past the six months—and beyond that. Right now, the Relative Strength Index and the Williams %R charts indicate that the stock is currently sitting at what are typically considered the “oversold” thresholds, but it doesn’t seem like either indicator is signaling a bullish move just yet.

For one, most traders like to look at the RSI in conjunction with trends, as trend support can often coincide with RSI support. However, share prices have had little to no support recently, and we’ve seen the stock continue to linger in the weaker RSI territory as it has dipped lower and lower.

Also, it’s worth noting that traders looking at a Williams %R chart tend to regard a move from “oversold” territory back across the -50 threshold as a bullish indicator. As we can see, P has some work to do before it gets there, and it’s not like the stock has proven its ability to stay above -50 for very long either.

And finally, these pieces of analysis will all depend on your preferred method of trading. . Regardless, it will be incredibly interesting to see how shares of this once-innovative music platform can perform at these levels.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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