Shares in Twitter Inc (TWTR) have shot up more than 25% since hitting an all-time low a couple weeks ago, but it remains to be seen if Twitter stock is at the inflection point the market has been waiting for.
As everyone with a passing interest in Twitter stock knows, shares have been deeply disappointing since their initial public offering. Indeed, TWTR stock is 30% below its IPO price of $26, and it has lost 20% in the new year alone.
At the same time, this relentless selloff in Twitter stock has been accompanied by volatility. So not only has TWTR been a money-loser, but it has done so in a rather uncomfortable way.
With that as the backdrop, the social media company’s most recent quarterly report could have been a dagger in the heart of Twitter stock. After all, the report revealed that Twitter’s already decelerating rate of user growth flatlined.
Heck, shares have performed poorly all this time because of anxiety over user growth. And yet TWTR stock has been rising sharply ever since.
So what gives?
The proximate cause for this rally was some bullish Wall Street commentary. Analysts at Argus basically said clients should buy the dip. At the same time, analysts at SunTrust Robinson Humphrey explained how TWTR stock could be a good performer without user growth. Just cut some costs.
The buy-the-dip call worked as a trade, but appears to have already run its course.
As for Twitter stock making sense at current levels given growth trends … huh? Rates for digital advertising are shrinking. That means digital publishers, social media companies, et al, need to increase the number of eyeballs seeing those ads just to tread water.
Then there’s the problem that you can’t cut your way to growth.
Fundamentals and Technicals Weigh on Twitter Stock
User growth is a basic problem Twitter needs to fix if the stock is ever going to get back to the IPO price or beyond. Bullish analysts say things like Twitter is appropriate for risk-tolerant investors with a long-term time frame, but then, you can say that about a lot of stocks.
Too bad analysts as a group aren’t all that bullish. Of the 44 analysts covering Twitter stock, 13 call it a buy, four call it a sell and 27 have it at hold, according to data from Thomson One Analytics.
Click to Enlarge
Sure, their average price target of $20.72 a share implies upside of about 14% in the next 12 months or so — not too shabby — but that would still leave TWTR stock below the IPO price. These are not the hot returns investors were expecting.
Twitter’s gains feel precarious. Shares have been finding resistance at the 50-day moving average since last summer. The big run has them closing on that level again. If Twitter stock can break through to turn that resistance into support, perhaps we’ve seen the bottom.
But perhaps not. As a particularly risky, volatile stock, TWTR isn’t suitable for many investors’ portfolios. If you do like Twitter stock at these levels, don’t fall in love. You have to accept that you might get burned.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
