Twitter Shares Showing Short-Term Leadership In The Nasdaq

Twitter Inc TWTR have shown some very nice relative strength versus the broader market in recent weeks. The stock has traded at or near 2015 highs even as the market has seen some downside pressure in the short-term. The company's status as the go-to resource for international communication, news and opinion flow has great potential for monetization.

Will that potential turn into a profitable reality? The short-term chart hints that the answer may be "yes", but the longer-term technical picture is less clear. Let's take a look at the surface numbers and the chart to get a better picture of Twitter's present and future.

What The Bulls see

• A platform that ties the world together in a single communication platform, which can be monetized further in the near future.
• A strong balance sheet offering the company lots of options for growth: Cash of $3.62 billion that exceeds its debt of $1.61 billion, total debt to equity ratio of 44.32 percent and a current ratio of 10.81.
• Strong positive levered free cash flow of $147.56 million annually, meaning its balance sheet won't be in jeopardy any time soon.
• A rapid growth organization that nearly justifies its 120 P/E ratio, with 69 percent estimated revenue growth and estimated EPS growth in excess of 100 percent for 2015.

What The Bears See

• Negative profit margins and negative returns on both assets and equity.

Very rich valuation metrics:

• A market capitalization of $31.88 billion that trumps the company's estimated enterprise value of $29.86 billion.
• A price-to-sales ratio of 22.68.
• A price-to-book ratio of 8.77.
• A P/E ratio of over 120.

The Technical Take

In the short-term, Twitter shares have run up nicely – gapping up in February, testing the upper edge of that gap in March and then eclipsing resistance at $50 recently. The stock is now pulling back gently and digesting some of the recent gains.

The initial support for Twitter comes in at the horizontal line at $47.93, the March low at $45.13 and the bottom edge of that February gap at $42.04. Resistance now comes in at last week's peak at $51.87 and is backed up by the 2014 peak at $55.99.

Overall…

The chart of Twitter stock hints that if the market stabilizes, even more of a rally may occur. The valuations are very rich, however, so any hiccup in fundamental execution may lead to a massive selloff.