The markets have been a soap opera of sorts in recent weeks, and Twitter (TWTR) has been no exception. In fact, Twitter stock has arguably (and impressively) had even more drama than the broader market.
The question, of course, is whether the worst is over for the social media network … or whether it’s yet to come.
First things first: a recap. Shares of Twitter stock have lost nearly 50% over the last 52 weeks, including a 23% plunge this year alone. A variety of factors are to blame for the steep decline, with disappointing user growth and leadership uncertainty taking starring roles.
On the leadership front, former Twitter CFO and more recently VP of the company’s venture division Mike Gupta was just hired at up-and-coming container company Docker. That news came on the heels of CEO Dick Costolo stepping down earlier this year — TWTR has yet to name a replacement.
Co-founder Jack Dorsey was named interim CEO, but it’s unclear whether he will take over full time, especially considering he runs mobile-payments startup Square, which is also slated for a public market debut.
The media is swirling with predictions. Many expect an announcement in the next week or so … and many expect such an announcement to be the catalyst for Twitter stock to begin moving in the right direction.
Even if that prediction comes true, though, there are far better places for your money than Twitter stock.
The Trouble With Twitter Stock
While Twitter stock has been hit hard in recent weeks, talk of a bottom is beginning to take over, with many talking heads arguing that all the bad news is already built into TWTR’s slashed share price. A quick sample:
- “Twitter Stock Is Headed for $50, Technical Charts Show” — The Street.
- “Twitter: Catalysts In Place For A Near-Term Bottoming And Turnaround” — Seeking Alpha.
- “Why Shorting Twitter Stock Could Be an Expensive Mistake” — The Motley Fool.
Some analysts feel the same; SunTrust recently upgraded Twitter stock from “neutral” to “buy,” for example, arguing TWTR’s risk/reward ratio is more favorable after the recent decline.
But remember: There’s a big difference between a short-term recovery and solid long-term prospects. And especially in markets like this, investors should be thinking long term.
While shares are currently trading below their short-term and long-term moving averages, they’re still not cheap. Despite the downfall, Twitter stock is trading at more than 43 times earnings. Take a look at TWTR’s trailing profit margin, operating margin, return on assets and return on equity, and they’re all substantially in the red.
And while solid sales and earnings growth are expected in coming years, investors should be concerned about the fact that Twitter is already a former darling in the market’s fastest-evolving sector.
For the cherry on top, the supposed “good news” that could send shares higher — such as a new head honcho — only look promising because things are so ugly right now.
Bottom Line
In a rocky market, investors should be hunting for companies with tried-and-true business models that are trading at a discount.
Put another way, the best way to play the current turmoil isn’t to go bottom-fishing for shares of a struggling social media stock.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
