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Twilio (NYSE: TWLO ) stock is one of those names that draws a big "ugh!" from me when I look back over the long-term charts. Simply put, I had TWLO stock on the radar and let it fade away. Shares went from $30 to $90 in just a few months last year and that train has kept on moving.
Some investors were wise enough to load up in the $20s, $30s and $40s after the post-IPO surge cooled down. I say wise because $90 was only a temporary top, with TWLO stock now another 50 points north of that.
It brings up the all-too easy (and too familiar) question of, have investors missed their chance in Twilio stock?
Evaluating Twilio Stock
The short answer is no. But the higher we bid the stock, the more risk we take as future returns are diminished. No one wants more risk and less reward, right? That line of thinking is traditional and makes sense in most circumstances.
For me, I don't mind paying up a premium for a stock that's proven itself. I'd rather pay a premium for TWLO stock at $50 as it was surging higher and had momentum in its business, than buy at $30 two years ago when it had uncertainty surrounding it.
Twilio stock running from $50 to $100, then $100 to $150 is big, but realistic. However, buying today - at $140 a share - we can't expect TWLO to run to $280, then $420 so fast. So what now?
Valuing TWLO Stock
There's no other way to put it: Twilio stock is not cheap. But there are plenty of stocks that weren't cheap that went on to have stellar moves and make long-time investors wealthy. Three that come to mind are Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ) and Salesforce (NYSE: CRM ).
I'm not saying TWLO is necessarily the next one of those ( these stocks might be ), but with an almost-$19 billion market cap, there's still room for upside. For a company that's forecast to do $1.1 billion in sales this year, many investors will gag at the 16.3 times current revenue figure.
Like I said, this name isn't cheap!
But TWLO stock is turning profitable and while cash flows are not yet where I'd like to see them, the long-term trajectory is big for this company. Twilio's description reads, "Twilio Inc. provides a cloud communications platform that enables developers to build, scale, and operate communications within software applications."
In other words, this cloud-based platform is a key cog in many companies' customer communications strategy. That includes Uber (NYSE: UBER ), Lyft (NASDAQ: LYFT ), Airbnb and Salesforce. Have you seen the growth rate for these companies and then considered what that means for TWLO?
It's not just them, either. Coca-Cola Enterprises, Twitter (NYSE: TWTR ), Nordstrom (NYSE: JWN ), VMWare (NYSE: VMW ), the American Red Cross, Yelp (NYSE: YELP ), Twitch, Lululemon Athletica (NASDAQ: LULU ) and more are all TWLO customers.
Analysts predict 70% revenue growth this year, but "just" 34% growth to $1.48 billion next year. That's still solid growth, but the declining rate of growth could be something that stalls the stock at this valuation. Let's look at the charts to get a better idea of what's going on.
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While the slowing revenue growth rate in 2020 is a concern of mine, keep in mind Twilio's still in fiscal Q2 of 2019. More immediately though, Twilio stock just offered 7 million shares at $124 in a secondary offering. So far, the stock has done an incredible job of absorbing this excess supply, along with the shaking off the market selloff in May.
That said, there have been some cracks showing. Through Q1, the 20-day moving average was support. In Q2 that support faded and the 50-day moving average had to buoy TWLO stock. And while almost everything was under pressure by the end of May, this mark had technically given way for Twilio.
All this is to say that I don't know how much we can count on the moving averages should we get a pullback. Twilio stock has been riding a multi-month channel filled with higher highs and higher lows. We should consider channel support to be support until proven otherwise.
If it fails though, we could get the correction that sidelined bulls have been hoping for. We nailed the breakout over $100 in January and in March said Twilio stock is a buy on essentially any type of pullback . While those have paid off, we need to use more discipline now.
Recently, dips below $125 have been gobbled up, while aggressive bulls will be buying on tests of the 50-day and channel support. Below that we have the 38.2% retracement at $112.27 and the 50% retracement near $101. In between is the 200-day moving average. I would love a dip to this area to consider a long position in Twilio stock.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Kenwell is long AMZN.
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