The logic in and of itself makes sense. Microblogging platform Twitter Inc (NYSE:TWTR) has found itself at home in the world of sports, and the World Cup football (you may know it as soccer) tournament underway right now is drawing people to the site.
TWTR stock is up more than 60% since its early April lows, as investors and analysts made the connection. A handful of upgrades in the latter part of April helped as well.
It’s possible, however, that Twitter shares have flown too far, too fast. The analyst community as a whole — which has had ample opportunity to change its mind in the meantime — has still collectively kept its price target on TWTR stock at levels well below its current price.
Perhaps we should at least ask why.
Traders Have Gotten Ahead of Themselves
It’s all something of a game, if we’re being honest. Analysts are showmen as much as they are handicappers, and there’s something of an unofficial contest among them to see who’s willing to set the highest and lowest target prices for high-profile equities.
Twitter is no exception to that norm. The funny thing is, as a group, the analyst community is actually pretty good at figuring out where a stock is headed. Chalk it up to the so-called “jelly bean theory.”
That’s a problem for current fans and followers of TWTR stock. It’s presently trading at just under $46 per share, but analysts say it’s only worth $31.65 per share.
Maybe the analyst crowd is wrong. Or, maybe they’re just too busy to chime in with their updated view on Twitter.
Or, maybe the bulk of these professional stock pickers know all they need to know about the company, along the likely impact of the World Cup tournament. Perhaps they don’t care because they know a small faction of investors can get a little too optimistic at times, only to pay something of a price for thinking preemptively.
In its/their defense, that’s nothing new for TWTR stock bulls. The stock’s price has been above the average analyst target for the better part of the past couple of years. Rather than be reeled back to the consensus target, that average price target has chased the stock higher.
Investors, inspired by the company’s fiscal progress, have forced analysts to at least partially acquiesce by upping their targets since mid-2017. As the graphic below illustrates though, even by Twitter stock standards, traders have gotten a little ahead of themselves relative to the analyst community’s aggregate opinion.
The knee-jerk defense is that those upgrades and raised targets are coming. And, perhaps they are. Or, perhaps they already have.
A wide swath of the analyst community had no problem upgrading TWTR stock immediately following the company’s Apr. 25 earnings report, even as it was selling off. Twitter may be about as upgraded as it’s going to get with this particular cycle.
With no prospects for upgrades and raised targets in the near future, there’s not a lot of fuel left to add to the bullish flames.
In other words, look for the pendulum to swing the other way for a while.
Bottom Line for TWTR Stock
If all of this seems vaguely familiar, the reason may well be because at the end of April I was making a similar argument — just a diametrically opposite one.
That is to say, I contended Twitter was poised to rally, as the professionals were decidedly bullish on the stock even though the trading crowd wasn’t stoked. Here we are, less than two months later, and TWTR stock has rallied a nice 53%, give or take.
More important, though, the same principle applies again — just in reverse. An overly emotional trading crowd has pushed the swing too far in the other direction, and a more level-headed analyst crowd says at least a partial return trip is in the cards.
Welcome to trading.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.