Is Twitter Cheap? I Have No Idea

Shares of Twitter ($TWTR) have been getting clocked lately. This is part of the broader smash-up in momentum stocks that we’ve seen. The lock-up period for Twitter has just expired so insiders are now allowed to sell their shares. Even though a number of insiders said they wouldn’t jump ship, the market ain’t waiting around. The stock dropped 18% yesterday, and it’s down another 4% today.

So is Twitter cheap? Honestly, I have no idea. Twitter is one of those stocks that’s outside the realm of fundamental analysis. By any reasonable measure, the shares are vastly overpriced, but so are many stocks in embryonic sectors. If I can’t make it add up, then I stay away.

The Street expects to make four cents per share this year. That ain’t much for a $30 stock. It’s actually an increase from zero just a few weeks ago. For Q1, Twitter made a grand total of $183,000. That’s not per-share but the whole thing. That’s around what a successful restaurant makes. On a per-share basis, that works out to one-thirtieth of a penny.

The question now before the market is: “Will a momentum crack-up turn into a broader sell-off?” It’s too early to say for sure, but I’m inclined to think it won’t. The yield curve is still wide, and outside the momentum names, valuations are hardly excessive. Remember that a stock like McDonald’s, which is far more representative of the U.S. economy than many tech stocks, still yields close to 3.2%. That’s not far from the 30-year Treasury.

Posted by on May 7th, 2014 at 12:24 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.