Why Twitter Shares Sank Today

Before you go, we thought you'd like these...
Before you go close icon

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Twitter fell 5% today after Wells Fargo downgraded the microblogging giant from market perform to underperform.

So what: Along with the downgrade, analyst Peter Stabler maintained his valuation range of $36-$39, representing about 35% worth of downside to Friday's close. Although Stabler remains bullish on Twitter's long-term prospects, he believes the current valuation doesn't discount enough of the growth hurdles ahead.

Now what: According to Wells, Twitter's risk/reward trade-off is rather unattractive at this point. "[W]e believe investors underestimate some challenges facing the company and advertisers seeking to employ the platform," noted Wells. "Specifically, (1) widely varying degrees of consumer engagement, (2) discounting of engagement metrics/high costs, (3) potential challenges to rapid adoption of TV related products, and (4) amplification risk associated with marketer mis-steps using the platform." When you combine those challenges with Twitter's lofty price-to-sales ratio of 60, holding out for a wider margin of safety certainly seems prudent.

More compelling ways to grow
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.

The article Why Twitter Shares Sank Today originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading