Twitter Inc (NYSE:TWTR) stock may be overvalued at present, but shares could move further upwards with a rise in investors sentiments regarding the company’s strategic value, business model flexibility, and scope of better earnings in the future, according to Stifel’s internet analyst Jordan Rohan.
Twitter positioned to add more value
At present, both the sell-side and buy-side are negative towards the stock with 7 analysts rating it as a Buy, 13 suggesting Holding the stock and 11 advising to Sell. Total short interest represents 37% of the float.
Noting the open interest in the listed options, analysts says “we also find it interesting that call open interest is 35% greater than puts (775K calls vs. 573K puts), which we view as a bullish short-term signal.”
The report notes that the stock could climb from current levels following the upcoming first earnings report as a public company on February 5th “for which options are currently applying a +/-16% move.” According to report, the downside risk to the price of the stock cannot be ignored, but at the same time the stock is positively positioned to add more value.
Twitter’s valuation appears risky
Shares of Twitter Inc (NYSE:TWTR) surged around 6.8% to $64.69 on Friday, and the stock has added twice the value it had while issuing its IPO. Shares climbed to as high as $74.73 towards the end of last month, says a report The Wall Street Journal. The stock trades at a PE of 46 times its earnings before interest, taxes, depreciation and amortization (EBITDA), and 125 times fresh cash flow based on 2016 estimates, according to Rohan.
“It would be easier, perhaps, to initiate coverage of Twitter Inc (NYSE:TWTR) with a neutral or negative view,” he said. Analyst added that any reasonable discussion of the business metrics that “drive Twitter’s valuation will show risk from current levels.”
Rohan notes that although there is a great deal of enthusiasm related to Twitter Inc (NYSE:TWTR) stock, his job as an analyst it is not to give easy or convenient calls. A good analyst will make a detailed analysis of where the price will go from the current level with identifiable growth drivers guiding the decision process, and that is how he came up with the projected target of $75 and a Buy rating on Twitter.