Does Twitter’s Stock Provide An Opportunity Post Sell-Off?

Twitter’s stock (NYSE: TWTR) has risen by 1.5% over the last five trading days to $53 which is lower than the Trefis estimate of $59. In comparison, the broader S&P500 has fallen by 0.6% over the last five trading days. Twitter’s stock witnessed a sell-off after Twitter’s Q1 2021 earnings as the overall market was disappointed by the company’s outlook for second quarter and wary of the signs of weakness in user growth. Investors are concerned whether users will remain focused on apps such as Twitter as the pandemic is receding in the US. Will the company resume its upward trajectory over the coming weeks, or is a further fall in the stock imminent? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using twenty years of historical stock data, returns for Twitter’s stock average around 1.5% in the next one-month (twenty-one trading days) period after experiencing a 1.5% rise in a week (five trading days). Further, the stock is likely to outperform S&P500 returns by 0.4% over the next month (twenty-one trading days).

But how would these numbers change if you are interested in holding Twitter’s stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Twitter’s stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF TWTR stock moved by -5% over five trading days, THEN over the next twenty-one trading days, TWTR stock moves an average of 3.3%, which implies an excess return of 1.6% compared to the S&P500.

More importantly, there is a 57.6% probability of a positive return over the next twenty-one trading days and a 53.2% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of Twitter Stock Movements

Question 1: Is the average return for Twitter stock higher after a drop?

Answer:

Case 1: Twitter stock drops by -5% or more in a week

Case 2: Twitter stock rises by 5% or more in a week

Is the average return for Twitter stock higher over the subsequent month after Case 1 or Case 2?

TWTR stock fares better after Case 1, with an average return of 3.3% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.9% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Twitter’s stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Twitter stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For TWTR stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Twitter after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

TWTR’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Twitter stock by changing the inputs in the charts above.

While Twitter stock may have moved, it is helpful to see how its peers stack up. Check out Twitter Peer Comparisons to see how Twitter compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.