Shares of cloud communications platform company Twilio Inc (NYSE:TWLO) have skyrocketed past the clouds and now trade out of this world. As of Tuesday’s closing price of $68.22 and its 4% gain, Twilio stock now trades at all-time highs and has risen 140% year to date, crushing the 6% rise in the S&P 500 Index.
These metrics alone don’t suggest that TWLO stock is misplaced nor that the market has gotten this story wrong. However, given the company’s small work sample and the short history of TWLO stock movement, it’s worth asking if TWLO stock is now overbought?
Not to mention, investors still need a longer track record for assessing managerial execution, considering that the company only went public in June.
In that regard, as retail investors aggressively scoop up Twilio stock, Wall Street and smart money is seemingly taking a wait-and-see attitude.
Consider, as of Tuesday’s closing price of $68.22, TWLO has outperformed analysts’ consensus price target of $39 by about 75%. That’s a hefty premiums above expectations for a company that operates what’s essentially is a text messaging service or a cloud-based personal assistant.
Indeed, the company’s texts service can do things like generate passwords, reminds users of appointments and confirm phone numbers. But the company is not expected to turn a profit until, at best, 2018. With 137% year-to-date gains currently on the table, there’s tons of execution risk that can impact Twilio stock.
It’s likely for this reason, the last analysts recommendations were all on the sidelines. The most recent of which was Argus, which rated Twilio stock with a “hold” rating on Aug. 25. This was preceded by two “neutral” ratings coming from Goldman Sachs and JPMorgan Chase.
To date, Twilio has done a solid job growing its consumer base. The company boasts more than 30,000 who appear to value what some describe as an easy-to-use platform, encompassing voice, messaging, video and authentication services.
But how long will it take for Facebook Inc (NASDAQ:FB) or Amazon.com, Inc. (NASDAQ:AMZN) to decide they want a portion or all of that business? As of now, Twilio has benefited from its one-stop shop quality and its premium pricing.
Its success will invite competition. Once the company determines it has to grow by entering more price-sensitive segments, that premium pricing it enjoys now will erode, which could delay its profitability.
And this won’t bode well for Twilio stock, which analysts are waiting for to come back down to earth.
As of this writing, Richard Saintvilus did not hold any a position in any of the aforementioned securities.