Man do I kick myself on Twilio (NYSE:TWLO). Because of the limited-supply stock offering we got in the IPO, shares exploded to the upside. After rallying from sub-$30 to $65, shares eventually cooled off again. Investors had a chance to scoop up Twilio stock under $30 for about 13 months, essentially all of 2017.
That was the time to strike and that’s why I’m kicking myself. Shares last traded below that threshold in February of 2018. Now up near $125, bulls who have been holding the name have seen a massive payoff.
Investors will likely never get a chance to buy this one back near $25 to $30 again, but that doesn’t mean they won’t get a buying opportunity. Should the broader market come under pressure again in the form of a correction, TWLO stock will almost surely go on sale.
For instance, during the fourth-quarter correction, Twilio stock was changing hands at $65, roughly 50% below current levels. Let’s look at the charts a bit more.
Trading TWLO Stock
Click to Enlarge
The chart is a little zoomed out for my preference, but it highlights everything we need in TWLO stock.
The first kick-yourself moment came back in February 2018, when TWLO stock went into full-blown breakout mode. Even those who waited until this moment — buying at $35 instead of $25 — have reaped massive returns. Those who missed this opportunity weren’t left completely in the dust though. They had another chance as well.
Shares of Twilio broke down in October, but buying it seemed too risky. That’s fine. However, in November, shares put in a higher low, a bullish technical development, and more important, the stock did so after reporting earnings. The report was a blowout, sending the stock from a $70 to $100 in just two days.
Yet, like Nike (NYSE:NKE), Roku (NASDAQ:ROKU) and countless others who reported strong reports and were unreasonably sold off during the correction, TWLO stock too found itself lower. Less than two weeks after that report, shares were back to its pre-earnings levels.
That was a perfect chance to buy Twilio stock for those that missed it the first time. That’s where comes kick-yourself moment No. 2 comes into play if you didn’t pull the trigger (don’t worry, I’m in the club too).
So why am I going through all of this? After all, it was last quarter. Because this price action could repeat itself should we get another market correction. I don’t know if we’ll see $65 anytime soon and to be clear, I’m not looking for the markets to retest the December lows. But maybe we get another chance at Twilio near $100. Perhaps $90 and even $75 could be on the table in a larger correction.
Evaluating Twilio Stock
On big rallies, investors should consider lightening up on some of their positions, creating cash for the eventual pullback. These pullbacks should create opportunities for investors looking to get back into the market’s best growth names.
Twilio clearly has a long runway of growth, but don’t mistake this for a cheap stock. With its $15.5 billion market cap, TWLO stock trades at roughly 14 times this year’s sales. That said, analysts expect revenue to grow 65% this year to $1.08 billion and another 32% next year.
Further, the company is expected to earn 10 cents per share this year and 27 cents per share next year. With Twilio’s lack of profitability, there’s no point in trying to value it on an earnings basis.
Fundamentalists will quickly critique that observation, but just because there’s no profitability doesn’t mean the company isn’t worth investigating. After all, Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) have returned thousands of percent over the last decade and trust me, those companies had plenty of profit critics over that span. Heck, even Twilio stock is up 200% over the past 12 months despite its relatively empty bottom line.
In fact, many of the market’s biggest winners lately, Roku, The Trade Desk (NASDAQ:TTD), Invitae (NASDAQ:NVTA), Okta (NASDAQ:OKTA), etc., aren’t yet profitable. But enterprise software has been on fire and for that, Twilio stock is at least deserving of a deeper look on a larger market pullback.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVTA, ROKU and AMZN.
