Social media giant Twitter Inc. (NYSE: TWTR) released its quarterly earnings last week, and Wall Street didn’t take it well.
Shares sank by double digits in Friday trading. And the sell-off continued this week, as you can see in the chart below.
At first glance, the quarterly numbers looked solid.
Advertising revenue rose 30% in the quarter — despite the absence of an election to get people riled up and tweeting. Monetizable daily active users jumped 20% to 199 million. So far, so good.
However, expenses grew by 21%. Management indicated they would likely be up 25% this year.
I wrote about Twitter’s stock rating back in August of last year, noting at the time that Twitter’s biggest problem was its lack of size.
Twitter’s 200 million users sounds impressive, but Facebook has nearly 2 billion daily active users.
Social media networks have value only because people use them. A network without users is useless.
Twitter has been around since 2007, but it’s failed to gain real traction. Donald Trump’s four years in the White House weren’t even enough to expand Twitter’s user base, and he pretty much ran his presidency from his Twitter account.
I said to steer clear of Twitter in August. But the markets aren’t always rational. So, by February 2021, the shares had doubled from their August levels.
Investors have sold off some of those gains since then, with shares trending lower since late February.
If you’re a Twitter bull, this sell-off could be an opportunity to buy the dip.
But I want to take another look at Twitter stock through the lens of our Green Zone Ratings system.
This is chief investment strategist Adam O’Dell’s proprietary model that rates stocks on the factors proven to drive market-beating returns. (More about the factors below.)
We run this model daily on a universe of more than 8,000 stocks and rank based on “Overall Rating.”
These ratings range from 0 to 100, where 0 is “worst,” and 100 is “best.”
Twitter Stock Rating
At first glance, it’s only gotten worse for the social media platform’s stock. Twitter rated a 41 the last time we looked at it, and it rates 18 out of 100 today. That puts it in “High-Risk” territory (a rating of 20 or lower).
It lost 23 overall rating points since Friday’s earnings sell-off. That’s not a promising sign.
TWTR Green Zone Rating on May 6, 2021.
Let’s drill down into the six factors.
Momentum — Twitter rates highest on momentum, which isn’t a surprise. (As I mentioned, the share price doubled in less than a year.) It rates a 66 here. That’s solid, but the shares have trended lower for months now, and recent action suggests that the momentum is draining out of this stock.
Growth — TWTR’s growth rating tanked from a respectable 75 on Friday to 53 on Thursday. Our model takes earnings into account, including earnings per share (EPS) growth over the previous quarter (the fourth quarter vs. the third quarter) as well as year over year (fourth quarter 2020 vs. fourth quarter 2019). It looks at these metrics for revenue and net income, too. That earnings announcement pummeled Twitter’s growth score.
Quality — Tech stocks often sport strong quality ratings in our system because they tend to be “capital lite” businesses that generate high margins. Twitter’s rating of 59 is decent, but it’s not high for a tech company. I expect a social media stock to rate better here.
Volatility — TWTR is not a steady stock. Its volatility is only 21. It’s more volatile than almost 80% of the stocks in our universe. That’s not a deal-breaker on its own, but Twitter‘s other ratings aren’t high enough to compensate.
Value — Twitter rates a 5 out of 100 based on value. There is no sugarcoating it: Twitter is an expensive stock.
Size — Despite being perpetual second fiddle in social media, Twitter is a large $45 billion stock by market value (number of shares outstanding times current share price). Twitter rates a 3 out of 100 on size.
Bottom line: So, there you have it. Twitter still rates poorly on our scale.
It’s now gotten more expensive, which lowered its rating further. I stand by my original conclusion: Twitter is a stock you’re best off avoiding.
Pro tip: Don’t forget that you can use Adam O’Dell’s proprietary Green Zone Ratings system to look up the stocks you’re thinking about buying! You’ll see the stock’s overall score, as well as how it rates on all six factors. If you aren’t sure how to look up stocks on our homepage, check out our research analyst Matt Clark’s four-minute video below.
To safe profits,
Charles Sizemore
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.