In some ways Twitter (NYSE:TWTR) stock looks very cheap.
It has a price-to-earnings ratio of just 13, well below the market average. Over the last year, its earnings per share came in at $3.03. It has delivered $1.466 billion of operating cash flow over the last four quarters.
For the third quarter, analysts, on average, expect Twitter to earn 20 cents per share on revenue of $876 million. Those estimates are modest enough that some analysts are “whispering” about EPS closer to 24 cents.
Twitter has made a place for itself as a website where celebrities connect with their fans, and where politicians and others make news.
But is it time to buy Twitter stock?
The Bull Case on Twitter Stock
Let’s start with full disclosure. I tweet.
When I have a new story here, I tweet it. When I publish my weekly column, I tweet it. When I think I have something pithy to say, I tweet it.
On Twitter, I look for what people like Stephen King, Joyce Carol Oates and David Simon, the creator of The Wire and other classic TV shows, have to say. I’m always happy to see something from 97-year-old Carl Reiner. He’s my Twitter hero.
President Trump has been very, very good for Twitter. He keeps the service in the news, and the reactions to what he says are very profitable for Twitter. Sometimes tweets make news in unexpected ways, as when the Pope celebrated the ascension of new saints and New Orleans Saints fans took notice.
The Bear Case on Twitter Stock
The bear case on TWTR stock starts with the eventual departure of Trump from the White House. The next President is almost certain to use the service more judiciously. While former President Obama issued tweets (and still does), they’re usually celebratory, positive, or promote tolerance. They usually don’t make headlines.
Since the start of the year, TWTR stock is up 40%. Most analysts consider TWTR to be overbought. Hedge funds have been piling into the stock and may now be looking to take profits. Twitter’s Q2 earnings blew out estimates, and the company isn’t expected to repeat that in Q3.
The P/E ratio of TWTR stock was skewed by its Q2 results, some say. As a result, the P/E ratio is likely to rise closer to 30.
The company has introduced a new metric, monetizable daily active users. That’s the average daily number of people on Twitter who see advertisements . That metric came in at 139 million in Q2. Twitter is also pitching itself as a means of launching new products and services online.
The Bottom Line on Twitter Stock
Twitter is telling investors that it’s a mature company which can deliver steady revenue and operating income gains. Its results still look too choppy for me to buy that argument.
But I can buy the idea that Twitter will still be around five years from now, either delivering decent results on its own or from inside another company.
For younger investors, that makes TWTR stock a buy.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.