(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Twitter, Inc. (TWTR) shares increased by about 7% on March 14, with the stock reaching prices not seen since the summer of 2015. The shares have been on fire in 2018, with the stock already up by over 50%. Despite the significant gains, shares are down nearly 50% from the peak following the IPO in late 2013. But an analysis of the technical chart suggests Twitter could rise 25% further, should shares breakout.
The social media company saw its stock rocket higher after the CFO made positives comments in a TV interview. It was also reported by CNBC, that Twitter is working on a camera feature which could rival Snap Inc.'s (SNAP) Snapchat.
The technical chart shows Twitter is at a significant breakout level, should it rise above $36.75, and follow through in the days to come. Should that occur, the stock could rocket higher towards the next major resistance area around $46.25, a rise of about 25% from the current resistance level.
Big Option Bet
The options market has some bullish bets taking place as well, most notably one significant stake that rests at the $37 strike price for expiration on January 18 of 2019. The open interest shows nearly 101,000 contracts of calls at that level, trading at a price around $6.40 per contract, giving the position a notional value of about $64.7 million—a massive wager. What is even more impressive about these contracts: the bet was made at the end of August. Twitter was trading around $17 at the time of the wager, meaning the options were trading at much lower premiums. What is worth noting is that the trader has let the bulk of the position run, creating what appears to be a massive profit.
Analysts Are Still Bears
But the analysts still aren't on board with Twitter like some investors and traders. In fact, the average price target on the stock is $27.77, about 24% below the stock's current price. Of the 38 analysts that currently cover the stock, nearly 82% of them have a hold, underperform, or sell rating.
Estimates for Twitter show it is expected to see earnings growth of nearly 34% in 2018 to $0.59 per share, while revenue is expected to grow by almost 10.7% to $2.7 billion. Earnings are expected to continue to grow in 2019 by 13%, and by 18% in 2020.
For now, the charts, and the options market appear to be telling of a stock poised to rise. Twitter has gone from one of the worst performing stocks to now one of the hottest.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.