Over the past few weeks, the tech industry has been quite startled. Amid the Cambridge Analytica scandal, investors have become wary of Facebook FB, allowing other social media outlets to begin grabbing more attention.
Twitter TWTR, another major social media outlet, has jumped to a Zacks Rank #1 (Strong Buy). With an ad-driven business model similar to Facebook, Twitter could be an option for investors looking to switch into another large social media option.
Here is a breakdown of why Twitter could be an exciting stock this year.
Twitter stock has doubled in the past year alone, with shares at $14.40 in April of last year and $28.76 this April. What is the driving factors behind this surge? It all is centered around growth.
Twitter is currently sporting an “A” grade in the Growth category of our Style Scores system. It is worth noting that the company is expected to witness EPS growth of 21.5% on an annualized basis over the next three to five years, which, when coupled with its surge in stock prices in the past year, bodes well for the investor looking to jump in early on a long-term growth play.
The growth investor will also be happy to hear that Twitter is sitting at a Cash/Price ratio of 0.21, more than double the industry average 0.09. On top of this, its Earning Yield is currently at 0.59% while the industry average is at -1.09%. Both of these statistics are indicative of a profitable company on the rise.
But growth can only be considered a plus if financial stability is established. Luckily, Twitter has Cash Flow of $0.70/share, indicating solid financial health. With these numbers it is easy to see why Twitter is a highly sought-after growth stock, but there are a couple of drawbacks to consider.
The main concern with Twitter stock is its valuation. Currently Twitter has a P/E ratio of 168.1, P/CF ratio of 40.9, and a PEG ratio of 7.8, which are each significant premiums to their respective industry averages. All of these go to show that Twitter’s valuation is inflated and are clearly reflected in its current “F” grade in the Value category our Style Scores.
While Twitter may be overvalued, the overwhelmingly positive growth statistics and current troubles with Facebook could be indicators of a major shift for the stock. Twitter is a strong option for growth investors looking to move away from Facebook, and these growth factors have helped push Twitter to a Zacks Rank #1 (Buy).
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