Why Twilio Stock Is About to Have a Massive Breakout

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Twilio stock - Why Twilio Stock Is About to Have a Massive Breakout

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Despite the turmoil in the overall stock market, Twilio (NYSE:TWLO) has been surprisingly resilient. On Monday, Twilio stock was again flirting with a breakout over $100 per share. If it does break out and the overall markets avoid a retest of the lows, this high-growth — and high-valuation — stock can really take off.

Twilio is definitely a regret for me. As an investor, I know that we can’t win ‘em all and that we won’t always buy at the bottom and sell at the top. With that said, picking out a stock and failing to pull the trigger on what ends up being a big winner is a tough pill to swallow.

My biggest issue with the company has always been its valuation. Nonetheless, Twilio runs an excellent business and has a lot of momentum behind it right now. Bulls are betting that it can maintain pace.

Valuing Twilio Stock

Analysts expect Twilio to grow sales 58% this year to $630 million, followed by 32% growth to ~$828 million in 2019. They also expect almost 160% earnings growth this year to 11 cents a share. Forecasts call for 45% growth to 19 cents a share in 2019. Clearly, the company still touts strong growth, even if the rate is decelerating after a strong 2018.

Shares exploded after the company reported its fiscal third-quarter results in November, climbing more than 33%. Remember, this was during a time of turmoil for the stock market — although, admittedly, the worst was yet to come. In Twilio’s case, the company beat expectations and raised forecasts, giving investors confidence that Twilio had the wind at its back.

Will that continue? Clearly, some believe it will.

On Monday, Piper Jaffray analysts named Twilio a top software pick for 2019, along with Adobe Systems (NASDAQ:ADBE) and Zendesk (NASDAQ:ZEN). On Tuesday, Keybanc analysts maintained their “overweight” rating, but bumped their price target from $103 to $114.

While I believe the stock can break out (assuming the market holds up going forward), there are some concerns for TWLO. Concerns like TWLO stock being up 400% since February 2018 and that net income continues to dip (despite showing positive non-GAAP earnings). There’s also the fact that free-cash flow remains negative.

Again, momentum here is strong — margins are on the rise, customer count is climbing and, obviously, revenue is moving in the right direction. But those issues are a few things to take note of for investors looking at a longer-term position.

Trading TWLO Stock

chart of Twilio stock price
Click to Enlarge
Source: Chart courtesy of StockCharts.com

The trend has been from the lower left to the upper right, with resistance at $100 on the nose. You’ll notice the first test of $100 came after Twilio stock’s powerful post-earnings rally. The fact that investors were able to buy TWLO stock about two weeks later at pre-earnings levels should have been a flashing buy sign for the name. Unfortunately for me, I missed my chance in Twilio and will have to move on as a result.

Traders, though, can still extract some alpha. Over the last three months, Twilio stock has rallied to $100 three times now. The first two times held as resistance, so we can’t rule out that possibility again. If there is resistance at the $100 level, look for a possible pullback down to the $80-$84 level. That lands TWLO stock near uptrend support and the 50-day moving average.

Should $100 give way, then we have a breakout in the name. Not that I like to buy a stock that’s up ~33% in a one-month span, but pushing through $100 could pave the way to $110 or possibly higher. The issue? We need the overall markets to play ball too. After a quick post-Christmas rally, indices have already gone a fair distance in just a few trading sessions.

Regardless, Twilio stock is setting up as a solid trade — either as a breakout candidate or a buy-on-dip name.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/twilio-stock-massive-breakout/.

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