To put it simply, I’ve been wrong on Twitter (NYSE:TWTR) buy Twitter stock has turned out to be for real.

I worried about management turnover. I fretted about user growth. The company’s plan to pivot to video seemed unwise. And all along, even below $20, I argued that Twitter stock was overvalued.

But the fact is that Twitter management has done an excellent job over the past few years. And it’s driven nice gains in TWTR stock. Yet it’s not as if the company has made any major changes.

It has tried to emphasize video but the overhaul tipped by its one-year deal to broadcast NFL games never quite arrived. The interface hasn’t changed much (save for the move to 280 characters). User growth actually has been minimal, as Brad Moon pointed out recently.

Twitter simply has driven more engagement and sold more and better ads. It’s slashed stock-based compensation. Adjusted EBITDA margins near 40% are among the best in the space. Simply put, this looks like an excellent company right now.

That said, “right now” is the key phrase. Stocks are valued on their future prospects, and TWTR stock is not cheap. Can management pull enough levers for Twitter stock to again outperform the market going forward?

The Case for Twitter Stock

The case for Twitter stock is reasonably simple. The company simply needs to keep doing what it’s doing, as shown by a monster Q3 earnings report. Revenue rose 30%, yet daily active users rose just 9% and monthly active users declined over 1%.

The disconnect between user growth and revenue growth highlights the success so far  and the opportunity going forward. Twitter simply is getting better at monetizing its users and better serving its advertisers. It’s that strength that led to Q3 growth that surprised the company itself. CFO Ned Segal explained the company’s success at a conference last week:

And so we point back to a larger, more engaged audience, we point to better ad formats, our execution with advertisers…We are helping them measure their success on Twitter better than we were before. And then the clarity of those things, combined with the results when you could show them the ROI [return on investment], has empowered them. [It’s] emboldened them to spend more on the platform than we expect them to.

As revenue grows, margin expands. Incremental dollars cost Twitter very little, particularly if those dollars are coming from pricing. The figure expanded ~400 basis points in the quarter and is guided higher for the year.

That trend should continue. Indeed, Q3 suggests Twitter at least has several more quarters of growth ahead (one reason why TWTR stock rose so sharply). Add to that international potential, and Twitter earnings should be able to grow for some time to come.

The Case Against TWTR Stock

The question at $36 is to what extent that optimism already is priced into Twitter stock. TWTR is not cheap. Backing out net cash, the stock trades at 22x EBITDA and 40x earnings (both multiples are based on the company’s 2018 guidance).

And it’s fair to ask, even with consistent execution, just how fast Twitter can grow going forward. High Adjusted EBITDA margins are attractive but they also represent a challenge to growth. It’s difficult to get margins that much higher from near-40% levels.

Meanwhile, users can be better monetized but not forever. At a certain point, engagement gains and ad improvements will stall out. Without some growth in the user base, which has been stagnant for years now, growth eventually starts to fade.

Even with the strong Q3, analysts only are estimating about 12% earnings growth next year. That seems potentially low (and the high estimate projects a 40% increase year-over-year) but it does highlight a concern, even with Twitter stock below summer levels.

After all, 40x earnings and 22x EBITDA are multiples that incorporate strong, multi-year growth. A couple of years into its turnaround, Twitter may not have enough left in the way of internal improvements to drive that kind of growth.

On the Sidelines

Twitter management certainly deserves credit for the performance of late. But with TWTR stock having doubled in the last 14 months, that performance looks priced in.

So what’s next? Is a buyout on the table? Giants like Verizon (NYSE:VZ) and Disney (NYSE:DIS) have been floated as suitors in the past but Twitter basically tried to sell itself in 2016 and received no takers.

Is there a way to expand the platform? That seems unlikely. Twitter isn’t going to take market share from Facebook (NASDAQ:FB) or even Snap (NYSE:SNAP). Twitter’s platform pretty much “is what it is” at this point.

That might be good enough for TWTR stock. But it’s going to take continued impressive execution. Investors betting on TWTR here clearly are betting on management and history suggests that might not be a bad bet to make.

As of this writing, Vince Martin has no positions in any securities mentioned.