November 3, 2017
Twitter (TWTR) exploded 18.5% last Thursday on volume that was eight times average following the company’s earnings announcement.
What I like: TWTR is a big, liquid stock that surged on earnings—and importantly, soared again the following day (last Friday), when it rose another 7% on four times average volume, driving the stock to its highest level since October 2016. On its weekly chart, TWTR has been attempting to build a bottom for 20 months (since February 2016), so there could be a nice foundation to work off. And, fundamentally, I’ve always believed Twitter had a unique and potentially revolutionary service.
Any potential problems? In a word, management. Despite a unique product, they’ve struggled to attract users and grow the business. Maybe the market is sniffing out a return to growth, but in Q3, Twitter’s revenues actually shrank 4% and earnings were up just 11% while users rose 4%. Even next year, analysts see earnings up just 13%.
My take: TWTR’s earnings gap seems like a classic high risk/high reward situation—I don’t consider it a real leader, but in a bull market, these big bottoms can often lead to big moves. This might be a stock to consider starting in small (with a stop near 19) and buying more down the road if shares move higher.