Much like most of the smaller-capitalization tech sector, Twilio (NYSE:TWLO) stock suffered tremendous devastation in the past year. It peaked just over a year ago after a phenomenal rally. Unfortunately it also crashed in an equally as astonishing fashion. The round trip out of the pandemic was 560% up, 73% down. Luckily, TWLO stock bottomed a few days ago, and it’s making an effort to make it stick this time around.
Before they declare victory on that front, investors need to continue to watch for potential selloffs. For the past seven months, rallies have generally ended in disappointments after short bursts. This is a symptom of the sell-the-rip algorithm code, which has been in effect.
The recent rally has not yet exceeded those prior, failed ones. So TWLO is not out of danger yet. Most recently there were two rallies that died on Feb. 10 and March 1.
Therefore, Twilio bulls will be able to breathe a small sigh of relief if they convincingly overcome $180 per share. Then any subsequent dips would have a chance to hold a higher-low.
This means that the price action needs to stay above $146 per share this week. Once the bulls regain control, I think the rally back will eventually be epic.
Meanwhile, investors need to keep expectations more modest than normal. We still have too many serious geopolitical headline threats. Those who go all in right now are making a mistake by having too much conviction despite so much uncertainty.
Otherwise, the Twilio fundamentals are incredibly encouraging. Management sustained a roughly 60% revenue growth rate since 2015 at least. Although they still have a net loss, they generate $1.4 billion in gross profit.
TWLO Stock Is Cheap
In spite of its net loss situation, TWLO stock is not exorbitantly expensive. Its price-to-sales is under 10, half that of Tesla (NASDAQ:TSLA) and almost three times cheaper than than Nvidia (NASDAQ:NVDA). If the stock markets are higher in the future, then my assumption is that Twilio would also be a winner.
There is also potentially good news from the charts. The recent dip brings support into view for a better bullish thesis. While breaking out in May of 2020, the stock left a massive gap that finally filled earlier this month. Moreover, the price is now at levels that have the highest volume in years. This suggests that if lower prices come, there will be masses wanting to trade it. That’s an ocean of lurking buyers looking for the same opportunity as 2020.
Therefore, the upside opportunity becomes the easier path for the next few months.
This is one of the fastest momentum stocks I’ve seen in years. So the bears might underestimate it and suffer tremendous losses. And when there are losses for one side, there are profits for the other side.
According to Yahoo Finance the experts agree, since the majority of them rate TWLO as a buy or better. Astonishingly, their average price target is twice the current price. Nevertheless, I can’t stress enough the importance of humility. The geopolitical dangers and the Federal Reserve’s tightening cycle could crimp bullish efforts.
For the last few months I’ve lowered my expectations on all my trades. By keeping position size smaller than normal, I can safeguard against surprise headlines. I would also suggest booking profits faster than normal. Markets are too volatile to overstay our welcome in profitable trades.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
