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2 Reasons To Avoid Twitter (TWTR)

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

Today, I want to show you 2 Reasons To Avoid Twitter so you can continue building your wealth safely.

2 Reasons To Avoid Twitter (TWTR)

Years back now, Twitter (TWTR) took the world by storm and became the next hot social media platform.

It rode this excitement into an IPO on November 7th, 2013 at $26 per share.  And skyrocketed one month later to its all time high of $69 per share on January 3rd, 2014.

At its height it was valued at $41.8 billion.

Since then its fallen and bounced around a lot between $17 and $50 per share.  And as of this writing it’s at $39.86 per share.

But is it a good stock to buy now?

No.

Here are the 2 reasons you should avoid its stock.

  1. It’s Unprofitable

In the most recent quarterly data Twitter was unprofitable on an operating income and net income basis.  And only positive on a free cash flow basis because it issued shares.

  • Its operating profit margin in the trailing twelve months (TTM) period is negative 2.1%.
  • Its net income margin in the same period is negative 1.3%.
  • And its free cash flow to sales (FCF/Sales) margin in this same time is 6.1%.  Again, this is only positive because it issued more shares during the quarter.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

You want profitability margins to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

For example, I look for companies to have operating and net profit margins above 10% on a consistent basis.

And I look for stocks FCF/sales margins above 5% on a consistent basis.

Why these numbers?

Because after evaluating thousands of companies over the last 14 years of my career I estimate fewer than 5% of all companies in the world surpasses these thresholds… So, when a company does it makes it a great business.

High profits allow the company to continually reinvest in and grow its businesses in a healthy way.

But if a company doesn’t surpass these thresholds – like Twitter – this leads the company to having less money to reinvest in the business to continue competing well.

Plus, its enormously overvalued too…

2. Its Overvalued

Its P/E is 23.9.

Its P/CF is 34.6.

And its forward P/E is 45.9.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Twitter is well above this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have a better chance of earning higher returns owning its stock over time.  And these things combined make the stock a less risky investment.

With Twitter being overvalued it means there is no margin of safety owning its stock… That you have a far lower likelihood of making money owning its stock over time.  And these make investing in its stock riskier.

None of this means I think Twitter stock will implode over time.  I don’t.

But I don’t recommend you buy it for the reasons above.

Plus, I’ve already found better potential investments for you…

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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