For more than eight months, Twitter (NYSE:TWTR) stock has seen little movement. Since last August, TWTR has reached the $35 per share level twice — only to retreat. For the first time since December, Twitter stock again trades near that key level, leaving investors wondering whether it will again fall. Still, given the specter of a possible triple top, the range on TWTR stock should decide the timing on buying the stock, not the buy case itself.
Since last summer, range-bound trading patterns have defined Twitter stock. Despite improving fundamentals, TWTR has underperformed its peers since the Dec. 24 market low. Facebook (NASDAQ:FB) has risen 44% from this low. Snap (NYSE:SNAP) has increased by an astounding 225%.
Twitter has only increased by about 32% during the same period.
Twitter Compares Well to Its Peers
The relative stagnation in Twitter stock appears to make little sense. TWTR supports a forward price-to-earnings ratio of just over 34, well below many other tech stocks. Profits may stagnate this year. However, analysts expect earnings growth of 18.6% next year — and they see it moving higher in future years.
Moreover, Twitter has faced fewer allegations and competitive issues than its peers. Facebook faces scandals related to both privacy concerns and Russian collusion. FB also suffered the largest one-day market cap loss in stock market history after its earnings report last summer. Snap has fared worse, as Facebook co-opted many of Snapchat’s attributes. It has also lost a portion of its core teen audience to Facebook’s Instagram.
Twitter stands in a stronger position. Although Twitter has dealt with accusations of bias, regulators and users have more often targeted Facebook. Moreover, Facebook cannot easily position itself to steal Twitter’s micro-blogging audience. It would have to either create a separate site or undermine the attributes of its flagship platform to compete with Twitter. Hence, Facebook will likely not displace Twitter, despite having a market cap nearly twenty times as large.
Further, chart indicators appear favorable. TWTR trades above its 50-day and 200-day moving averages. The indicators from the MACD also points to a higher price.
When to Buy Twitter Stock
Given these factors, Twitter stock should — and almost certainly will — rise above its range. When this move finally occurs is another matter. Considering the PE ratios and expected profit growth rates alone, TWTR will have to break out of the range at some point. For this reason, TWTR stock is a buy, but only at the right time.
Two key levels will determine that time. Those wanting to buy tend to focus on the double top in Twitter stock. However, traders need to remember that TWTR has also established a double bottom. It has twice bounced back from levels of just below $27 per share. If it reaches that point, TWTR stock becomes a clear buy. Considering the fundamentals, I do not see Twitter breaking the lower range as a likely possibility, but I would sell if that occurred.
The other buy point comes just beyond the top of the range. Since last August, Twitter stock has established a record high of $37.14 per share. I think if it can stay above that price, traders can safely assume that the stock has finally broken through its range. From there, I think TWTR could retest its 52-week high of $47.79 per share.
Bottom Line on Twitter Stock
Fundamentals, charts, and the competitive situation of TWTR stock itself make the stock a buy. Now, the question becomes when. Knowing when to buy comes with patience. Investors should wait for Twitter stock to either retest the lows of the range, or to break out of the range on the high side. At either point, the equity will probably move higher.
The key hinges on understanding how the range affects the movements in TWTR. By understanding that pattern, traders can not only purchase a stake in a stable company, but they can also buy at a time that will maximize their profits in Twitter stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
