The sharp rally in Twitter’s (NASDAQ: TWTR) stock in the last month will deter value investors from chasing it. Yet Twitter is a fundamentally better microblogging services company than it was last year. After bottoming at below $16 last year in the fall, the stock formed an uptrend.
Valuations are unfavorable at an 84x P/E. Debt is a meagre 0.35 times equity. Is there more upside in Twitter at prices above $40 a share?
Twitter continued climbing higher after a convertible debt offering worth $1 billion through six years, plus an option to buy $150 million more. Investors view the cash infusion will further fuel the site’s growth. Constant tweets from President Trump, strong earnings, higher advertising revenue and better user activity justifies the valuations.
CEO Dorsey’s return to Twitter set the company on the right path. In the last two years, the site offers users an alternative source for news and chatter. Facebook (NASDAQ: FB) is still the preferred investing idea since users are too tied to the site to quit. And if they leave, they will use Snap (NYSE: SNAP) or Instagram, which Facebook owns, instead.
Takeaway
The $45 PT (price target) from Cascend Securities, set on June 5, does not sound excessive. Even Argus Research’s $50 PT is just 20% away and likely, as long as Twitter does not lose its growth momentum in attracting advertisers.
