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.
This article was republished with permission from Vintage Value Investing.