Just when Twilio (NYSE:TWLO) investors thought things couldn’t get worse, Monday’s warning quashed that potential reality. But as Wall Street dumps Twilio stock, what action should investors take? Let’s see what’s really happening off and on the price chart and offer up a stronger risk-adjusted determination.
The possibility for above-average and maybe even multi-bagger-style longer-term gains continue to be trumped by short-term pain for TWLO shareholders. Shares tumbled 5.2% Monday after the in-app text-based chat messaging specialist filed a second profit revision with the Securities and Exchange Commission following last week’s trimming of guidance when the company released its Q3 earnings confessional.
Citing a “calculation error” and inconveniently coinciding with an accounting probe at Under Armour (NYSE:UAA) Twilio now expects earnings of 12 cents to 13 cents per share of Twilio stock. The forecast compares to FactSet consensus estimates of 14 cents. The revised, below-views guidance follows last week’s mixed report which nonetheless was treated with caution by investors.
To be clear, warnings are rarely embraced. But for a growth stock of TWLO’s caliber whose sales increased by nearly 75% year-over-year and are still forecasted to crank out double-digit increases of nearly 16% over the next five years, it’s certainly a drag in the short-term. Moreover, it’s not Twilio’s only problem right now.
The soft dynamic of confidence has been undercut in TWLO stock. It’s important. Still, for an already skeptical Wall Street that’s been actively discounting Twilio’s future prospects beyond today’s latest and less-than-great news, could Twilio be a contrarian buy decision? Or are shares still a short sale or simply a name to hold off on?
Twilio Stock Price Weekly Chart
There’s little doubt Monday’s news release damaged the bull case with the specter of increased uncertainty and whether Twilio stock can be trusted. I wrote about not trusting TWLO shares in early September — unless investors were considering a bearish position.
Now though and with Twilio down another 18% and having corrected by 40% since topping out in June, today is obviously different. But doesn’t that make shares a buy?
On Twilio stock’s monthly price chart shares are quickly approaching a zone test of TWLO’s lifetime 50% to 62% Fibonacci support zone from around $72 to $87. That’s good news for investors. The area is also backed by levels associated with Twilio’s 2018 base breakout, which reinforces the idea of a longer-term bottom.
The bad news for Twilio bulls is the technical zone in question is fairly wide and could present today’s investors with significant losses before potentially carving out a bottom which actually holds the support area. More important, secondary indicators such as stochastics and the monthly Bollinger Band aren’t close to confirming any kind of bullish divergence worthy of buying TWLO right now.
Bottom line, bullish Twilio stock investors looking to position are advised to refrain from hitting the buy button until stronger reasons to purchase shares are setting up on the monthly chart. For the time being, as much as I hate to be the bearer of grim tidings, TWLO stock remains a short until proven differently.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.