Stocks to Avoid #2: Twitter (TWTR)
Even if Twitter does manage to grow revenue as it plans to do in 2014, it might be years — perhaps decades — before it can grow the top line to a point that justifies the current price of TWTR stock.
“While we think the long term potential for Twitter’s valuation is much higher, we think in the near term it has become stretched. On consensus 2014 revenue and EBITDA estimates, it trades at 36x and 295x (34x and 235x based off of our estimates). On 2015 consensus, the company still trades at significant premiums, at 23x and 125x (over 20x and 113x our estimate). In comparison, the average of other industry fast growers is 8x 2015 Revenues and 24x 2015 EBITDA. EPS and FCF valuation multiples are non-meaningful given their nascent positive turn.”
There’s a good chance all of Twitter’s shareholders, as well as non-shareholders, could crunch the numbers sometime in 2014 and decide holding TWTR stock doesn’t make sense.
And, even if Twitter does continue to grow at its rapid pace, with the market’s expectations as high as they are, there’s no margin for error or shortcomings.