Although it’s a short sample size, Twitter (NYSE:TWTR) has been underperforming both its peers and the tech sector so far this year. While Twitter stock is up 14.9%, it’s lagging both Facebook (NASDAQ:FB) and Snap (NYSE:SNAP). Those two stocks are up 25.4% and 96%, respectively, while the PowerShares QQQ ETF (NASDAQ:QQQ) is up almost 16% so far on the year.
Given this underperformance, are investors overlooking Twitter stock, particularly when it comes to its balance sheet?
Twitter Stock and Its Balance Sheet
As it stands, Twitter commands a market cap of about $25 billion. After the most recent quarter, Twitter holds about $1.9 billion in cash and has $4.3 billion in short-term investments. Together, that totals about $6.2 billion in cash, making up about one-fifth of the company’s market cap.
The company does have about $900 million of its $1.73 billion in total debt coming due. Even after netting that out though, we’re still talking about net cash of roughly $4.5 billion. That’s surprisingly strong for a company that many investors don’t value very highly.
Breaking it down a bit more, the company’s total current assets of $7.1 billion easily outweigh Twitter’s total current liabilities of $1.5 billion. This gives Twitter a quick ratio of ~4.7, meaning it can very easily meet its short-term obligation.
A quick ratio of 1 would suggest a company can meet its obligations, so having multiples of that figure shows the short-term strength in this business.
Total assets of $10.1 billion are almost three-fold the $3.35 billion Twitter has in total liabilities. That is coupled with the $855 million that Twitter has generated in free cash flow over the trailing 12 months and the financial position gains even more strength. If Twitter stock can maintain this momentum, it will gain even more strength over the coming year.
As it stands, analysts expect Twitter to grow revenue by 14% both this year and next year. Earnings expectations call for flat growth this year and 18% growth next year. Overall, Twitter’s balance sheet should be seen as a notable asset rather than a risky liability.
Trading TWTR Stock
Click to Enlarge
Twitter may not be Facebook when it comes to the balance sheet, given that the latter has one of the strongest in the market. But it’s definitely better than Snap’s situation. That said, Twitter stock has still underperformed its two peers so far this year. On the flip side, Twitter’s 6% rally over the 12 months bests Snap, which is down about 35%, and Facebook, which is roughly flat over the past year.
On the charts, Twitter has been locked in a fairly wide trading range. While support sometimes comes into play down near $28 and at times near $30, $26 is “ultimate support.” This level was the breakout area in February 2018 and has been very strong support each of the three times TWTR stock has tested it since then. On the upside, Twitter has generated selling interested up near $36.
On Friday, the stock was outperforming the big selloff in the market but ultimately got caught up in the selling. It couldn’t hold onto its potential breakout over the 200-day moving average and downtrend resistance.
I want to see if we get any upside action over the next few days. If bulls can’t bid TWTR stock higher, look for a possible test of $30 should the 50-day fail to buoy the name. Should Twitter stock rally, look to see if it can get above Friday’s highs. If it can, $36 is on the table.
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.
