Here's why the most bullish Snap analyst on Wall Street loves the stock

Published Mon, Mar 27 20173:26 PM EDT

RBC Capital Markets initiated coverage on Snap shares with an outperform rating, predicting sales to double each year for the next three years. "Snap has become an innovation leader – for both consumers and advertisers – in arguably the single fastest advertising medium today – mobile," analyst Mark Mahaney wrote in a note to clients Monday. "We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability." Snap shares are up roughly 40 percent from its early March $17 IPO offering price through midday Monday. But the stock is off 19 percent from its high price of $29.44, which occurred during its second day of trading. The analyst's Snap price target is $31, representing 36 percent upside from Friday's close. He has the highest price target on the company, according to FactSet. Mahaney cited how the mobile advertising market will grow to $196 billion by 2020. He said young Snapchat users were "highly engaged" and average more than 18 app visits per day. In addition, the analyst noted 47 percent of Snap advertisers will increase their spending on the platform, according to an Ad Age survey. "Our review of the history of internet companies is that the companies that most successfully and continuously innovate their offerings win," he wrote. "Our checks with and proprietary surveys of advertisers showed a very strong appreciation for SNAP's ad product innovation. This innovation orientation – towards both advertisers and consumers – should help sustain growth at Snap." As a result, the analyst estimates Snap will grow sales by 105 percent annually through 2019. His price target is based on applying a 20 multiple on 2018 estimated sales. "We believe that our estimates … support these admittedly high multiples. We would note that this is a premium multiple compared to other companies in the internet sector, but we believe is merited given Snap's higher growth rates," he wrote. Multiple other analysts initiated coverage on the company Monday morning after an IPO research quiet period. Snap shares traded up 7 percent midday Monday after the reports. — CNBC's Michael Bloom contributed to this story. Disclosure: NBCUniversal is an investor in Snap .

A stuffed ghost rests on a trader's screen above the floor of the New York Stock Exchange after Snap listed its IPO in New York, March 2, 2017.

Lucas Jackson | Reuters

RBC Capital Markets initiated coverage on Snap shares with an outperform rating, predicting sales to double each year for the next three years.

"Snap has become an innovation leader – for both consumers and advertisers – in arguably the single fastest advertising medium today – mobile," analyst Mark Mahaney wrote in a note to clients Monday. "We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability."

Snap shares are up roughly 40 percent from its early March $17 IPO offering price through midday Monday. But the stock is off 19 percent from its high price of $29.44, which occurred during its second day of trading.

The analyst's Snap price target is $31, representing 36 percent upside from Friday's close. He has the highest price target on the company, according to FactSet.