Twitter Stock: Value Investors Need Not Apply (TWTR)

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Anyone holding Twitter (TWTR) got a dose of good news Thursday in an otherwise disappointing year, courtesy of an upgrade and target-price hike on TWTR stock made by a prominent Wall Street analyst.

twitter stock upgrade, twtrBut even then, TWTR stock is hardly gushing with implied upside, according to the community of analysts covering Twitter — and that’s a problem for anyone who selected it for his or her 2014 portfolio. After all, those holders of TWTR are the red so far.

Even after a nice gain on Thursday following the upgrade from Doug Anmuth at J.P. Morgan Chase (JPM), TWTR stock is still down nearly 20% for the year-to-date. Since its initial public offering 11 months ago, Twitter stock is up 14% — just barely outperforming the broader market despite carrying much more risk.

When Twitter went public last November, no one piled in to take part of that kind of lackluster performance. TWTR was supposed to be the next Facebook (FB), remember?

Of course, if TWTR stock really is the next Facebook, investors should consider themselves lucky. Facebook stock went public in May 2012 and a year later it had lost more than 30% of its value. Cut to today, and FB has doubled since its public debut. Heck, while Twitter has been falling for the year-to-date, Facebook stock added 40%.

Wall Street Says TWTR is a Buy — Mostly

Whether TWTR can carve out a similarly impressive trajectory remains to be seen, but analysts, on average, aren’t super optimistic. J.P. Morgan’s Anmuth has an “overweight” (essentially a buy) rating on Twitter stock and a price target of $64 — thanks to the shift to mobile advertising. That makes the implied upside more than 25% in the next 12 months or so.

But Anmuth is very much in that optimistic camp. Analysts’ average estimate stands at $53-and-change, according to a survey by Thomson Reuters. That’s less than 3% higher than TWTR stock is now. Most research shops would call that a hold, or market perform, meaning it won’t beat the market, but it won’t lag either.

Analysts are closer to “buy” when it comes to their ratings in TWTR stock, but it’s hardly unanimous. Of the 35 analysts covering Twitter stock, 28 call it a “buy.” Three analysts say it’s a “sell,” and 14 have a “hold” rating in TWTR.

Part of the reason for analysts’ ambivalence is that Twitter stock is very expensive on a forward earnings basis. Only three analysts have modeled a long-term growth rate for Twitter, so take it with a grain of salt, but the average of those estimates comes to more than 80%. A forward price-to-earnings ratio of 138 is bit rich, even for that admittedly red-hot growth rate.

But then Twitter doesn’t trade on earnings. It trades on revenue, momentum, hope and hype. By those measures, 25% upside in TWTR stock looks reasonable.

Value investors can kick TWTR to the curb. It’s too speculative and expensive. As for momentum investors, TWTR could be a home run, especially now that it’s 20% cheaper than it was at the beginning of the year.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/twitter-stock-upgrade-twtr/.

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