Twitter Inc TWTR stock still looks strong technically, despite the short-term pullback in the shares. Are the bulls right that this is merely a “pause that refreshes”?
The Bullish View...
The bulls in the Twitter camp point to the company's very strong balance sheet: $2 billion in cash versus $200 million in debt, a current ratio of 6.65 and a debt to equity ratio of 6.62 percent. They also like the explosive revenue and EPS growth estimates for 2015 of 67 percent and 270 percent, respectively.
Additionally, the bulls love the company's technical picture, which is that of an uptrending stock that needs to be bought on every dip.
The Bearish View…
The bears, meanwhile, point out that the company is valued based purely on faith at this point. Those revenue and growth estimates had better come to fruition because the valuation is astronomical, at a price-to-earnings of over 140, a price-to-book of 9.83 and a price-to-sales of 30.76.
Add to that the questions about the company's ability to actually monetize its traffic and you have a bearish crowd that is pulling its hair out with frustration. “Why isn't the stock tanking?” they likely cry out.
Twitter's Technicals…
Technicians are unemotional about Twitter's story –- they only look at the price action.
The action in Twitter shares is as close to “textbook bullish” as it can be. The stock is well above its uptrend line and seems to go up violently and pull back gently, at least lately.
From Tuesday's close of $50.83, the nearest support for Twitter on this pullback comes in at $46.30, which is horizontal line support. Technicians think the stock will pull back to that level and then, theoretically, commence its next nice move to the upside with a projected target of $55.51.
Overall…
The Twitter bears can look for a little satisfaction short-term, according to technicians.
However, if they overstay their welcome once projected support is tested, they could live to regret it, as the next rally may be just around the corner.
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