Here's Why Investors May Bet On Twilio (TWLO) Stock Now
Twilio Inc. TWLO is one stock investors should consider adding to their portfolio to benefit from its upside potential.
Tech stocks have made a remarkable run year to date (YTD) after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. With a YTD rise of 27.2%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 0.9% and 11.7%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR, the most important component of the broad market index, has returned 33.1% YTD.
However, Twilio is among such stocks that have been left behind this year’s tech rally. The stock has surged 18% YTD while the Zacks Internet Software industry has gained 46.2% during the same time frame. Therefore, considering the company’s impressive growth profile and attractive valuation, we believe it is the right time to invest in the stock.
Twilio Inc. Price and Consensus
Twilio Inc. price-consensus-chart | Twilio Inc. Quote
Why Should You Invest in TWLO Stock?
Twilio stock currently trades way lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $57.84 on Oct 2 is 27.4% lower than the 52-week high of $79.70 attained on Feb 16, 2023.
Moreover, Twilio currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-sales multiple of 2.45X compared with its five-year average of 11.48X.
Additionally, amid ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Twilio has the favorable combination of a Growth Score of B and a Zacks Rank #2 (Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Twilio has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 149.1%. Additionally, TWLO stock has an impressive earnings per share growth expectation for 2023 and 2024.
The Zacks Consensus Estimate of $1.70 per share for 2023 earnings suggests a strong improvement from the loss of 15 cents reported for 2022. For 2024, the consensus mark for earnings is pegged at $1.92, indicating a year-over-year increase of 12.8%.
Long-Term Growth Drivers
Twilio has been benefiting from the continued digital transformation initiatives adopted by companies amid the rising hybrid working trend. The company’s selective acquisitions and strategic investments in businesses and technologies have been boosting its product portfolio and fortifying its global presence.
With its sustained focus on launching new innovative products, along with strategic acquisitions, such as Boku Identity, Sendgrid and Segment, the company has been able to rapidly add more customers and expand its global footprint. Twilio continues to witness the growing demand for its products and solutions from the healthcare, education, retail and crisis management organizations. Its efforts toward expanding the global footprint are commendable.
The company’s main business, Programmable messaging, is likely to witness tremendous growth as the global Application-to-Person SMS market is anticipated to witness a CAGR of 4.9% from 2023 to 2030, according to a Grand View Research report. We believe that with a sustained focus on developing products, along with the global expansion plan, the company is well-poised to grab this opportunity.
Additionally, Twilio is now focusing on improving profitability through efficient cost management. As part of its mega “Restructuring Plan” announced in September 2022, the company has reduced the global workforce by more than 25%. The strategy has been paying off well, as evidenced by its last three-quarter performance, wherein it reported a strong year-over-year improvement in non-GAAP earnings per share.
Therefore, though TWLO has fallen out of favor among investors, we believe that it is wise to invest in the stock for long-term gains, given the strength of its fundamentals and solid prospects.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are NVIDIA NVDA, Paylocity Holding PCTY and Palo Alto Networks PANW. NVIDIA and Paylocity each sport a Zacks Rank #1, while Palo Alto Networks carries a Zacks Rank #2.
The Zacks Consensus Estimate for NVIDIA's third-quarter fiscal 2024 earnings has been revised upward by 8 cents to $3.32 per share in the past 30 days. For fiscal 2024, earnings estimates have increased by 21 cents to $10.67 per share in the past 30 days.
NVIDIA’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing on one occasion, the average surprise being 9.8%. Shares of NVDA have surged 206.5% YTD.
The Zacks Consensus Estimate for Paylocity’s first-quarter fiscal 2024 earnings has remained unchanged at $1.07 per share in the past 60 days. For fiscal 2024, earnings estimates have moved 31 cents upward to $5.58 per share in the past 60 days.
Paylocity’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 39.7%. Shares of PCTY have declined 4.7% YTD.
The Zacks Consensus Estimate for Palo Alto Networks' first-quarter fiscal 2024 earnings has been revised upward by a penny to $1.16 per share in the past 30 days. For fiscal 2024, earnings estimates have increased by 4 cents to $5.34 per share in the past 30 days.
Palo Alto Networks’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 22.2%. Shares of PANW have surged 69.7% YTD.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Twilio Inc. (TWLO) : Free Stock Analysis Report
