Twitter Inc: TWTR Stock Just Got a Lot More Buy-Worthy … For Some

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Could it be true? Is Twitter Inc (NYSE:TWTR) finally more of an asset than a liability?

Twitter Inc: TWTR Stock Just Got a Lot More Buy-Worthy... For Some

While it’s hardly etched in stone, the recent technical action from TWTR stock does indeed say traders finally see more upside in owning Twitter than downside.

At the very least, would-be owners that have been patiently waiting for the right time to wade in might want to go ahead and put Twitter stock back on their watch list even if not yet in their portfolio. The buyers have knocked down a couple of big walls, and done so with the help of a strong chart-based foundation. There has to be a reason.

TWTR Stock: The Bulls Have Spoken

At best, the shape of the TWTR stock chart will be deemed irrelevant by a wide swath of investors. A stock’s history, after all, can’t predict its future. And in many regards that’s true. The shape of a chart can, however, paint a picture of the market’s changing opinion of a company’s profit prospects.

To that end, for some reason, the market is increasingly saying it thinks Twitter stock now has more upside than downside.

Take a look. For the first time in months, Twitter is trading above its 100-day moving average line (gray). And it’s not as if a little volatility temporarily flung Twitter stock above the key long-term moving average line. The stock methodically walked up to and then beyond that line, with a lot of help from what has become a major horizontal floor at $13.92.

TWTR stock, daily chart
Click to Enlarge

In fact, if you look closely, the 100-day moving average line has turned into a floor itself, and while TWTR stock briefly broke below the 100-day average yesterday, the 20-day moving average line (blue) immediately stepped up to the plate and reversed the pullback before it ever developed any momentum.

Putting it all together, the bullish argument suddenly holds a fair amount of water.

So, What Gives for TWTR?

Few would deny this bullishness is unusual for Twitter stock, which has long been hammered on a combination of slowing user growth and concerns that its part-time CEO is stretched too thin because of his other CEO job at Square Inc (NYSE:SQ).

There does come a point in time, though, when a company’s valuation makes sense relative to its revenue, earnings and potential. Regardless of whether it’s intentional, the recent TWTR chart says the company may well have reached that point. From here, the market is saying it’s all upside, even if it’s a minimal upside.

Thing is, it’s not as if the stock’s current buyers are completely off base. There seems to be a legitimate light at the end of the tunnel.

The NFL deal is part of that light. Earlier in the year, the company announced it would be streaming ten Thursday night football games, linking the video with the comment feed about the game … a natural connection many fans like to watch and participate in. It’s a winning formula, if the fact that half of its ad inventory for those ten events has already been sold.

With a proof-of-concept in hand, Twitter can easily replicate the model for other events.

It’s not just a revenue-generating formula that finally works, however. It’s a million little changes — things as simple as stickers — that are slowly but surely making Twitter more engaging to users.

But user growth has slowed to nil? Yes, that’s definitely a sore spot, but what’s interesting about the stagnant user growth is that revenue hasn’t stagnated with it. Although its first-quarter top line was less than the revenue tally from Q4, last quarter’s sales were notably better than the top line from Q1 a year earlier.

Better still, the losses continue to shrink irrespective of the revenue trend.

It may not be great, but at least with a real profit, Twitter can justify its existence while it continues to tweak its model.

Bottom Line for Twitter Stock

Rock solid? No, that’s not a term that could be used to describe TWTR stock right now. There’s hope though, and that’s relatively new. And few would argue that Twitter stock is a name that trades on an absolute-value basis rather than a recent-relativity basis. That’s why the stock’s looking better now … things look more encouraging now than they did just a few months ago.

The litmus test will be the 200-day moving average line (green) currently at $20.45. Ideally, Twitter stock won’t race there, but rather, stroll there. A surge will only invite profit taking, bringing a quick end to the rally effort and forcing it to restart.

A more leisurely pace will simply allow TWTR stock to walk past it and then keep going, with no reason to fear a sudden selloff.

Of course, waiting to get in between the current price of $16.48 and $20.45 would be a missed opportunity, so for the more speculative crowd, it wouldn’t be crazy to step in now (based on the bullish clues we’ve seen so far) and use the $20.45 level as your first checkpoint target.

However one chooses to play it, keep Twitter on a short leash, and don’t be afraid to take profits in the event of a heated run-up. TWTR is still more of a trade than an investment.

It will need to establish a technical base above the 200-day moving average line and show us some measurable strength in a quarterly report — any kind of progress — to become an actual investment that can be given a little wiggle room.

Small steps.

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


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/twitter-twtr-stock-just-got-lot-buy-worthy/.

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