If you want growth both on and off the chart, then look no further than Twilio Inc (NYSE:TWLO). And if don’t want to pay a premium and enjoy protecting your you-know-what at the same time, a TWLO long bull call spread is in order.
Recent initial public offering and cloud communications play TWLO is hot on the chart. Since debuting two months ago, Twilio stock is up 133%. At its recent high, shares soared more than 175% and in excess of 340% from the $15 IPO price.
In all fairness, the small-cap Russell 2000 is up about 8% and hitting its own relative highs as of Tuesday’s close. Meanwhile, TWLO did stumble on the session by nearly 4.5%. “Oh, no!!??”
Optimistically and without being too hopeful, the bigger picture for this still-small company — one sporting enviable sales growth of 70% and light analyst coverage — suggests big opportunity could still lay ahead for TWLO investors.
Having said that, any would-be investors should appreciate price volatility is par for the course given TWLO’s current status. To boot, Twilio maintains a fairly significant hoard of naysaying bears.
Short interest is significant at around 32% according to Yahoo Finance. A price-to-sales multiple of 21 could be one glaring reason for betting against TWLO stock. But trying to short an up-and-coming growth stock on this type of metric could be a big mistake.
Bottom line — or top line in this case — Twilio may be a stranger to investors, but it’s already quite chummy with many of the biggest and most recognizable companies on the planet.
Facebook Inc (NASDAQ:FB), Home Depot Inc (NYSE:HD), Nike Inc (NYSE:NKE), Netflix, Inc. (NASDAQ:NFLX) and still-private Uber amongst others are already helping drive Twilio’s hyper-growth and future brand awareness. That, of course, should assist TWLO with growing into its steep valuation over time.
Lastly, while only a handful of analysts cover Twilio, CNBC’s resident cheerleader James Cramer recently praised Twilio as the future of cloud computing while literally kissing management’s “you know what” following TWLO stock’s blowout, freshman earnings announcement on August 8.
Cramer’s been right. Shares of TWLO are up some 30% since giving his stamp of approval. Now and in our playbook it’s still time to “Buy, Buy, Buy!!”…well kind of. Let me explain.
TWLO Stock Daily Chart
There’s not a lot to see or say about TWLO’s stock chart — no, really. What we can say is that while Twilio has yet to make a dime on its balance sheet, TWLO stock has been delivering a positive return on investment the past two months for Twilio bulls.
Looking forward, “the fun” is bound to end at some point in TWLO stock. However, with the lockup period still months away, an uptrend in motion and maybe similar to other past, too early and too heavily shorted companies — buying TWLO on weakness still looks approachable.
TWLO Bull Call Spread
Rather than “Buy, Buy, Buy!!” shares of Twilio and risk the wrath of being late, long and wrong, a better bullish approach is to buy and sell call options on TWLO stock and set up a limited risk bull call spread.
Reviewing the options board, the Oct $60 / $75 call spread is attractive. Priced for around $2.25, risk per spread is less than .005% of owning 100 shares of TWLO at $56. That’s nice.
The downside is this vertical does have a shelf life of around two months compared to holding shares forever; well, theoretically at least. Also, the positioning does also require a “small” bit of upside to turn profitable on an expiration basis.
Alternatively, if TWLO does continue rallying to fresh highs into October expiration, the pay-off profile for the vertical could be, in a very perfect world, upwards of 550% or $12.75 above $75. That’s nice as well.
And when compared to a Twilio shareholder purchasing at $56 and the $19 or 34% return for their sometimes more volatile and troubling position, the TWLO bull call spread is even more promising, without having to live with the fear of regret or missing out.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
