Twitter Inc (TWTR) Has Become an Outright Gamble

There’s a certain stage where delaying the truth becomes patronizing. Such is the case with Twitter Inc (NYSE:TWTR). We can no longer view Twitter stock as even a semi-reasonable speculation. With fourth-and-long adding to a miserable score line, there’s no point in playing it safe. Furthermore, the entire approach for the rest of the game has to change if there’s any chance of a comeback. That, whether we like it or not, is the fate of TWTR stock.

twtr stock twitter inc

The Fundamental View for Twitter Stock

I’m not going to spend too much time rehashing what most investors already know. Twitter stock jumped massively in the last few days of September as potential suitors flirted with a buyout. Just the names of the interested parties — Walt Disney Co (NYSE:DIS), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), and, inc. (NYSE:CRM) — was enough to justify a 33% leap in TWTR stock. Sadly, the heavy hitters failed to come through and it’s unlikely they ever will.

As InvestorPlace feature writer Dan Burrows notes, “TWTR is entering a dangerous new phase of having to justify its valuation — and it can’t.” In other words, what substantive gains Twitter stock had made recently were all due to M&A rumors. With that cover gone, the company is left with moribund subscriber growth and huge questions as to its business strategy.

Given the sudden selloff in Twitter stock, discount buyers are out in full force. TWTR has been volatile to the downside and up, which naturally tempts traders to make a quick buck. Even though the fundamentals are net bearish, I can understand the swing-trade argument. This won’t be the last time we’ll hear good news from TWTR stock.

It is important, however, to look at the pure facts of the case. For that, we’re going to use high school algebra and basic physics principles.

Bearish Technicals Hinder TWTR

Twitter stock, TWTR
Source: Source: JYE Financial, unless otherwise indicated

Now, let’s consider rival Facebook Inc (NASDAQ:FB). In its IPO year, FB averaged $24.67. In the current year, it’s averaging $115.46. Using the same methodology above, we can calculate FB stock’s slope as $22.70 per year ($90.79 ÷ 4 years). Again, on any given year, we can expect Facebook shares to gain roughly $23.

FB stock analysis
Source: Source: JYE Financial, unless otherwise indicated

What it All Means for TWTR Stock

Now, take another look at Twitter stock. There’s a massive gap between its algebraic slope and its year-to-year, nonlinear slope. The reason for this is that, since its IPO, TWTR stock has aggressively picked up speed to the downside. Put another way, every year in the company’s publicly-traded existence is wildly different from the next. There’s no reliable manner to forecast the next move for Twitter stock, given these circumstances. This is what makes it such a tough, unpredictable investment.

Facebook is a radical contrast. Whether I calculate its long-term average, or an average between one year and the next, its angle of attack is roughly the same. Given this consistency, anyone can make a reasonably accurate forecast. It’s no wonder why so many people love FB stock!

This is not to say that Twitter stock should be shorted. Rather, if you want to take a bet, take a bet. But, you have to understand that, mathematically, TWTR is erratic. You cannot justify a purchase in Twitter and Facebook — or any other stock — using the same analytical tools. They are animals on polar ends of the biological spectrum.

Simply put, buyer beware!

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

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