Shares of social media giant Twitter (NYSE:TWTR) had a confusing and volatile 2018. Twitter stock entered 2018 around $25. Fundamental improvements (accelerating revenue growth, expanding margins, and steady usage growth) pushed the stock to $50 by mid-2018.

Then, investors grew concerned about a drop in monthly active users, the threat of digital advertising regulation, and a slowdown across the global economy. Twitter stock fell off a cliff. It finished the year around $28, up just ~10% on the year.

Calendar 2019 should be much better and much more stable for TWTR.

Specifically, there are three reasons why Twitter should rally roughly 20% in 2019 on relatively muted volatility. First, the platform should benefit from favorable usage trends, as young professionals increasingly use the platform as a go-to digital entertainment and news source.

Second, the company should benefit from favorable financial trends, as revenues and margins still have a long ways to grow before they are maxed out.

Last, but not least, the valuation underlying Twitter stock is reasonable. Big revenue growth and healthy margin expansion has powered profits materially higher over the past year. Thus, the trailing valuation on Twitter stock finally makes sense relative to its digital ad peers.

Assuming strong growth persists for the next several years, there’s actually a strong argument that today’s valuation is too cheap.

Overall, Twitter stock is positioned to have a strong 2019. The stock won’t double. But, prices near $40 seem achievable, making today’s $30 price tag look like a steal.

Favorable Usage Trends

It has become increasingly clear over the past several quarters that Twitter has staying power as a go-to digital entertainment and news source for young professionals. As such, engagement should only go up over the next several quarters as the platform rolls out new features and expands usability.

It should be noted that Twitter is not in the same boat as Facebook (NASDAQ:FB) when it comes to declining popularity among teenagers. According to Piper Jaffray’s Taking Stock With Teens Survey, Facebook’s monthly usage among teens has dropped 16 points over the past two years from 52% to 36%.

Twitter’s usage has dropped less than 10 points during that stretch, and the platform remains the third most used social media platform behind Snapchat and Instagram. Even amid bad press related to data privacy and digital abuse, Twitter has grown daily usage at a consistent ~10% and up rate over the past several quarters.

Meanwhile, Snapchat’s daily active user base has been dropping, and Facebook’s daily active user base is barely inching higher. As such, Twitter has clearly established better-than-peer staying power as a go-to digital entertainment and news source.

As short seller Citron points out, Twitter should get a big boost in 2019 thanks to Alexandria Ocasio-Cortez, the young Democratic politician who has become the female, liberal version of President Donald Trump on Twitter. Her engagement on Twitter will stabilize and perhaps even reinvigorate growth in the monthly user base. It will also drive engagement higher.

Twitter is rolling out a bunch of new features in 2019, including advanced search, bookmarks, a new “Explore” tab, enhanced and personalized trends, and direct messages. The company will also likely make bigger moves into streaming in 2019. The sum of these new features will drive favorable engagement trends throughout 2019.

Healthy Financial Trends

Favorable usage and engagement trends only matter in their ability to make money. Fortunately, Twitter will likewise benefit from favorable financial trends in 2019.

This company has been in a class of its own in terms of financial trends in the digital ad industry. Other players in this space, like Facebook, Google (NASDAQ:GOOG), Snap (NYSE:SNAP), and Yelp (NASDAQ:YELP) all have suffered from slowing revenue growth, compressing margins, or both over the past several quarters.

Not Twitter.

Over at Twitter, revenue growth accelerated higher throughout 2018, while margins expanded. This is in part due to the company’s favorable usage and engagement trends. It’s also in part due to the company’s depressed comps, and consequently big runway for improvement in the long run.

This runway is still long and promising. Twitter’s average revenue per monthly active user measured less than $9 over the past twelve months. Facebook has an ARPU north of $20. Meanwhile, Twitter’s GAAP operating margins last quarter were 12%. Facebook’s were 42%.

As such, Twitter still has a long ways to go before its monetizing its users as well as Facebook, and its as profitable as Facebook.

Reasonable Valuation

Largely due to Twitter’s lack of profitability, the valuation on Twitter stock has always stood in stark contract to the valuations of other digital ad companies. For example, two years ago, Twitter stock was trading at a triple digit EBITDA multiple. Facebook and Google were trading at 20- and 15-times EBITDA, respectively.

That is no longer the case today.

Thanks to large revenue growth and big margin expansion, Twitter’s profits are finally growing. As such, the valuation is finally sensible. Twitter stock today trades at just 26-times EBITDA, versus ~15-times EBITDA at Facebook and Google.

Moreover, if you model Twitter stock out, prices near $40 look achievable this year. This company is a lock for 10%-plus revenue growth over the next several years, while margins should run towards Facebook levels at scale.

That combination makes $2 in EPS look doable by fiscal 2023. Based on a digital ad average 25 forward multiple and 10% discount rate, that equates to a fiscal 2019 price target of $38.

Bottom Line on TWTR Stock

Twitter stock had a weird and volatile 2018. But, underneath the violent stock moves, the fundamentals improved, and the valuation became much more sensible. As such, Twitter stock looks ready to rally with relatively muted volatility in 2019. Prices near $40 are achievable within the next 12 months.

As of this writing, Luke Lango was long TWTR, FB, and GOOG.