Twitter Inc (NYSE: TWTR), a highly followed social media firm with a market capitalization of $26.6 billion, saw its share price increase by 44.2% over the prior three months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But is there still an opportunity here to buy? I examine Twitter's valuation and outlook in more detail to determine if there’s still a buying opportunity.
Is There An Opportunity In Twitter?
Twitter appears to be overvalued by -27.0% at the moment, based on 7 separate valuation models. The stock is currently trading at $35.51 on the market compared to our average intrinsic value of $25.92. This means that the buying opportunity has probably disappeared for now.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$27.09||-23.7%|
|5-yr DCF Revenue Exit||$25.93||-27.0%|
|Peer Revenue Multiples||$19.27||-45.7%|
|Peer EBITDA Multiples||$26.07||-26.6%|
|10-yr DCF Growth Exit||$35.69||0.5%|
|5-yr DCF Growth Exit||$37.47||5.5%|
|Earnings Power Value||$9.92||-72.1%|
Click on any of the analyses above to view the latest model with real-time data.
Furthermore, Twitter's share price also seems relatively stable compared to the rest of the market as indicated by its low beta of 0.61. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon. And once it’s there, it may be hard to fall back down into an attractive buying range.
Can We Expect Growth From Twitter?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
With EBITDA expected to grow on average of 28.0% over the next couple years, the future certainly appears bright for Twitter. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
What This Means For Investors
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett's 1992 letter to Berkshire Hathaway Inc. (NYSE: BRK.B) shareholders, Buffett touches upon a subject at odds with much of the investment industry:
"Most analysts feel they must choose between two approaches customarily thought to be in opposition: 'value' and 'growth.' Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing.
We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive."
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company's value. Twitter has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their TWTR position for the time being.
I recommend you continue to research Twitter to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Twitter's cash ratio which is used to assess a company's short-term liquidity. View the company's cash ratio here.
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Twitter's return on equity here.
Forecast Metrics: what is Twitter's projected EBITDA margin? Is the company expected to improve its profitability going forward? Analyze the company's projected EBITDA margin here.
Author: Brian Dentino
Expertise: financial technology, analyzing market trends
Brian is a founder at finbox.io, where he's focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian's background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors.
Brian can be reached at [email protected].
As of this writing, Brian did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.