Can Twitter Inc (TWTR) stock finally stage a comeback?
Shareholders certainly hope so. Shares are down a startling 36% in 2016 alone, and now rest nearly 80% below their all time high near $70/share in early 2014.
In retrospect, it’s clear shares were incredibly frothy back then, but is it possible that the TWTR stock price is just a wee bit oversold at current levels?
The short answer is simply: Yes, it’s quite possible. And believe me, I’ve been a Twitter bear for well over a year now, so I don’t say that lightly.
What TWTR Needs
What Twitter needs when it reports fourth-quarter earnings Wednesday is a solid beat and raise. That applies to just about any stock in the universe, but given that Twitter’s stock just breached the sub-$15 level for the first time ever Tuesday, I’d argue Twitter needs a blowout quarter and great guidance more than the next guy.
But what exactly does a blowout quarter look like?
Analysts expect Twitter to report earnings per share of 12 cents in the holiday quarter on revenue of $709.94 million. While EPS of 12 cents would be the same as in the year-ago quarter, that revenue figure is 48.2% higher than a year previous.
Which brings me to my next point: Twitter stock may very well be undervalued no matter how you slice it at current levels.
Sure, there are no trailing earnings to speak of, but TWTR stock trades at 27 times forward earnings, which isn’t a huge premium to the market considering the rapid pace of revenue expansion.
There are some very real concerns with Twitter’s current situation: Namely, growth in monthly active users are essentially leveling off after years of rapid year-over-year expansion.
Check out the following graph for a representation of just how pitiful the recent slowdown in user growth has been:
At 20% of Facebook’s (FB) size, Twitter’s slower-paced user growth is extremely concerning.
Plus, there’s been a recent executive exodus at the company, and CEO Jack Dorsey is two-timing investors, doubling up as the CEO of newly public payment processing company Square (SQ).
So I understand, there’s a lot of reasons to be negative … but you’d be hard-pressed to find another company expected to grow revenue by almost 60% in 2015 and almost 40% in 2016 that’s trading at 27 times forward earnings.
I’ll add a caveat: Twitter stock is by no means cheap enough to have private equity firms in a bidding war. But it’s starting to look so beaten-down that buyers will swoop in and establish a floor sooner rather than later .
Before that happens, though, TWTR will have to prove that it’s doing just as well — and perhaps better — than people expected.
As of this writing, John Divine held none of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
