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.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% |
| Average | $25.92 | -27.0% |
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.
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.