- Twitter (TWTR) stock is under fire on Wall Street.
- This is presenting a multitude of opportunities.
- Ignore the headlines and trade the current stock facts.
Recently Twitter (NYSE:TWTR) stock owners went through a wide gamut of emotions. The drama actually started in March, as the stock soared 30% on rumors. Then the offer became official, and the drama started. Last week, the prospective buyer Tesla (NASDAQ:TSLA) CEO Elon Musk halted the deal. Consequently TWTR stock jubilation ended violently and it is now trying to recover. Today’s conclusion is that the dip is an opportunity to invest into it going into the summer.
Investors should know what to expect by now when Mr. Musk is involved. The sequence of events brought about opportunities for a multitude of investment styles. The arbitrage folks had a field day with the mile-wide differential between the offer and price. Also TWTR swung wildly +/- 20%, which gave momentum traders opportunities galore. Now that it completely collapsed back to the base, it is time for value investors to play.
Confused? Don’t feel bad because according to Yahoo Finance, most analysts are also unsure. Most of them are on “Hold” with it, but their average price target is $52 per share. This is just under the potential buyout bid, which is not completely dead. The deal may have to go through unless Mr. Musk can wiggle out of the break-up $1 billion penalty and accompanying legal woes.
| TWTR | $37.29 |
Deal Seesaw Temporary Broke TWTR Stock
Normally, I avoid politics like the plague especially for investing purposes. But in this case, it is part of the thesis. Mr. Musk was trying to make a political point more than invest for profit. Twitter banned many high profile right-wing users. The most famous one of them all was ex-president Donald Trump. Part of the buyout conversation was that new management would address, and likely reverse, these bans to promote “free speech.”
Right or wrong, the topic is now out in the open. It is no longer a concept but rather a reality. In the end, the deal will happen, or not based on the fundamentals. If the economics work for both parties, they will come to terms. After all they are in the business of making money, not political points. Besides, maybe now other interested parties may step up. Knowing a going rate for a company is an invitation to bid.
The fundamentals for Twitter have improved in the last few years. They are no longer purely hunting user metrics, but rather financial success. Revenues have doubled in five years, they even made a profit. Last year they generated $800 million in cash from operations. While the price-to-earnings (P/E) ratio doesn’t show it, TWTR is cheap from a price-to-sales (P/S) perspective. Owners of the stock now have reasonable expectations.
The Fiasco Will Not Last Forever
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TWTR stock is now at a very pivotal point. This is where it was at the start of the pandemic, and that summer’s mega breakout. Current price is also below its initial public offering (IPO), so the opportunity to own it fresh is upon us. Moreover, $38 per share had also been pivotal in 2015 and 2018. Clearly the data suggests that investors care about it now. The February lows offer a solid support line for the bulls to use as footing.
There is external risk because of the equities struggles in general. There is rampant fear that the Federal Reserve will tank the economy. The Fed’s rate hikes and rhetoric have damaged Wall Street’s risk appetite in the past few weeks. Add to this the geopolitical risks, and you get a lack of bids. But that’s when the best opportunities emerge.
When not many are looking to buy TWTR stock, the bargain becomes available. There is an opportunity for a potential recover to $50 per share in the next few months. Owning shares at these levels is a reasonable risk for the available reward.
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.
