Twitter - The New Newspaper
I joined Twitter in 2008. I gave it an honest try but just found it too overwhelming. Too much information flooding in from all these disparate points. At the time I was a trader on Wall Street and lots of other traders were using it to monitor the markets. It was clearly useful, but I cordoned it off from my work and online tools.
Things have clearly changed since 2009. Tweets are everywhere. And if you’re not on Twitter you’re certainly seeing tweets on other news sources. Given this, I started using my own account again a couple of years ago. And, compared to 2009, I find it much more useful and far easier to control the “fire hose” of information. Twitter grew up.
Now, as a firm and a source of information, Twitter attracts controversy. It is more or less the nature of the game now. The lack of editorial review differentiates the news now from newspapers of the past. Depending on your view, this can be good or bad.
As an investor, you should be happy about the controversy surrounding Twitter. Because underneath the covers, it is a solid business with near-monopoly power. Think about it, what source of information can rival Twitter?
Let’s dive into the details. First, here’s a chart of the sector Twitter resides in, “Internet Information Providers.” TWTR is clearly an outlier, it is just cheap with a PE of 13. From that outside landscape, it deserves a bit more inspection.
I like to look at 3 main dimensions when examining a stock from the inside: Quality of its financials, valuation, and momentum. If a company can do reasonably well on each vector, it usually deserves a place in my portfolio.
Quality-wise, I look at a firm’s Piotroski score. Altman’s Z-score is more applicable for industrial companies, but Piotroski applies well to all. I’ve attached a paper to the site where you can read about it. TWTR has a score of 7, placing it in the top decile. And it’s Piotroski score has risen steadily each year.
Valuation. With a PE of 13, TWTR is hard to ignore. Especially when its industry has an average of 29. When I run TWTR through my valuation engine I get a range from $54 to $84 per share, again placing it in the top decile of stocks. And according to analysts, TWTR’s EPS should be growing at well north of 20% over the next five years. There is an election coming up in 2020…
Momentum. TWTR has posted some solid returns in the last month, quarter, and year (again, top decile). And it has done it with less volatility. So, I’m not the first to recognize the value this company represents.
From the outside and inside, TWTR looks like a service people love to use, but a company in which they are hesitant to invest. It’s irrational and an opportunity.
Full disclosure: I do NOT own TWTR in my accounts. Yet. Please see my disclaimer and do your own research.