Following another explosively good earnings report, shares of Twilio (NYSE:TWLO) may once again look expensive to some value-minded investors. But as growth plays often make their best moves during periods of doubt, it’s time to prepare to go long Twilio stock today. Let me explain.
Not everyone is a buyer of TWLO stock after the cloud communications specialist blasted Street views earlier this week. InvestorPlace’s Luke Lango is one investor who’s once again concerned that Wall Street’s bulls have moved a bit too aggressively after TWLO shares skyrocketed 35% to fresh-all-time-highs.
By the numbers, Twilio crushed Q3 forecasts in a clean sweep. The report featured profits of 7 cents per share compared to Street estimates of 2 cents, sales growth of 68% on better-than-expected revenues of $168.9 million and Twilio’s management hiking guidance above analyst forecasts for its fourth-quarter.
No doubt, TWLO stock’s report sounds and looks great. Still, as Luke Lango notes, even if you like the long-term picture, Twilio stock isn’t cheap. That may very well be true. But in the right environment growth stocks like TWLO can also become even more expensive and highly profitable for investors willing to play momentum; rather than wagering on deep-value in the likes of General Motors (NYSE:GM) or some other heavily discounted name.
Bottom line, if history can serve as any sort of guide, it’s during these phases of disbelief, like the one in Twilio stock today, where shares can continue to defy well-intentioned valuation metrics and rack up massive gains instead. And that’s why TWLO is on the radar for buying opportunities.
Twilio Stock Daily Chart
So have other bulls gotten ahead of themselves in Twilio stock? The daily chart does hint at a short-term, overbought condition based on stochastics and shares pushing outside the upper Bollinger Band. However, I’m a buyer of TWLO near current prices.
It’s anticipated that any weakness in TWLO will prove to be a short-lived opportunity for bulls. Prior to this week’s massive price jump Twilio stock had established a nice, healthy corrective move which found support at the prior earnings gap and 38% retracement level. That should act as a solid platform for a much larger rally, assuming the broader market doesn’t crap out.
At the moment the recommendation is for Twilio stock investors to put shares on the radar and wait for one of two things to happen. First, look for a momentum entry above Wednesday’s high. Alternatively and a more likely scenario, I’d advise bulls to purchase TWLO on weakness into technical support.
If shares do proceed lower, I’d like to see Twilio test the $88-$89 area. This zone is TWLO’s prior highs and where buyers should enter the picture. If this scenario plays out, it will probably resemble a cup breakout that’s now forming a bullish high handle. For money management, I’d propose using a 8% stop loss just in case the momentum narrative weakens and shares find themselves gravitating towards more value-oriented levels.
For bullish investors that prefer a defined-risk strategy like our highly profitable post-earnings play in August; a modified bullish fence looks attractive. Specifically, selling the Jan $85/$80 put spread and buying the Jan $100/$110 call vertical for up to $1.25 is currently a favored way to gain bullish exposure in Twilio stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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