Rising interest rates may have fueled a big selloff in tech stocks last month. But, this near-term volatility can work in favor when it comes to entering long-term positions at more favorable prices. An example of this is Twilio (NYSE:TWLO) stock.
A powerhouse in the cloud communications space, Twilio is one of many large-tech names that “crushed it” in 2020. But, after skyrocketing more than five-fold, in the past month, shares have pulled back about 20% from their highs.
Some may see last month’s correction as the beginning of the end for coronavirus pandemic related tech plays. But, its strong growth in the past year won’t fade once Covid-19 does. Consider this pull back a fantastic opportunity to enter TWLO stock at a solid long-term entry point.
Demand remains strong from its key end users, most of which are in industries that thrived (or were resilient) during the outbreak. This sets the stage for Twilio continuing to beat expectations. It may still be too early to tell whether the recent rebound in tech stocks is temporary. Or if tech stocks are ready to rally toward new highs.
But, no matter the near-term direction of the market, this remains a winner. Consider Twilio stock a buy on the recent weakness.
TWLO Stock and Its Continued Success
Back in mid-February, investors were more than impressed with this cloud communication company’s quarterly numbers. This included top line results ($548.1 million in revenue) well above guidance ($450 million to $455 million). Non-GAAP earnings (4 cents per share) also beat expectations. Guidance called for losses of between 8 cents and 11 cents per share for the quarter.
Wowing investors, this news pushed shares to their all-time highs, just before the selloff. It’s no surprise Twilio crushed it last quarter, as they’ve have done so since the pandemic first threw us into the “new normal.”
Why? Twilio’s cloud-based SaaS platform, among other solutions, provides companies the ability to communicate directly with their customers. Given the breadth of solutions it provides for the e-commerce space, it’s easy to see how the past year has been such as successful one.
Some may worry that the world entering into recovery mode from Covid-19 will dampen its impressive growth. But, fortunately, that’s not the case. With analysts projecting 38.3% revenue growth in 2021, and 30.7% revenue growth in 2022, growth remains in motion for Twilio.
As the company continues to level up, so will its share price. Again, that’s what makes buying TWLO stock now on the pullback such a solid opportunity.
The Long-Term Bull Case Remains in Motion
Even after its near-20% slide, some may be hesitant to “buy the dip” in Twilio. In general, there may be concerns about additional near-term volatility in tech stocks. The interest-rate-driven selloff has eased in recent days. But, it’s hard to tell whether an overall tech stock pullback will continue.
Specifically for Twilio stock, there are concerns about its premium valuation. To some, this may signal it has little room to run, as growth catches up to its current valuation. Trading for 24.7x its estimated 2021 sales, I’ll admit it’s a bit pricey. But, given the projections quoted above, there’s plenty of growth ahead to justify higher prices. Also, after soaring over 290% in the past year, I can see why investors may believe there’s little room for shares to run from here.
Admittedly, the pandemic helped speed things up. Yet, the trends supporting this stock will not fade in a post-pandemic environment. The e-commerce megatrend certainly isn’t going away. Neither is demand from its other end-users, many of whom stayed strong or resilient during the crisis.
But, it’s not just organic growth that could help boost TWLO stock going forward. A recent M&A deal provides another catalyst that could help move the needle as well. I’m talking about its recent investment in Syniverse. Acquiring a minority stake in the mobile messaging company, Syniverse will partner with Twilio as well via a wholesale agreement.
In short, there’s plenty at play to send shares higher in the long-term. Any near-term concerns do little to break the overall bull case.
Bottom Line: Buy Twilio on Its Recent Pullback
For most of 2020, it was growth, not valuation, that was top of mind among investors. Rising interest rates may have investors reconsidering valuations for some high-flyers. But, given its solid growth projections, Twilio has plenty in play to justify higher prices in the coming years.
The pandemic may have boosted demand from its end-users. But, with demand set to stay strong post-outbreak, don’t expect its recent high growth to suddenly come to a halt. So, as so many are misreading the situation here, what’s the play?
Seize the opportunity, and buy TWLO stock on its recent weakness.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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