Will Twitter's Stock Find Its Footing And Lead The Market Again?

Twitter Inc (NYSE: TWTR) has been a market leader on the upside for months now. However, with the disclosure that ISIS and ISIS sympathizers were threatening to kill key Twitter personnel, including CEO Dick Costolo, the market forces took Twitter shares down hard for the first time in quite a while.

The reason for the decline may not have been 100 percent ISIS-related, as general market conditions have deteriorated and taken down even the best of stock issues.

So, rumors aside, how does Twitter stand up to the scrutiny of analytical eyes?

The Fundamental Picture

Twitter is the quintessential early-stage growth story in that the company is sitting on lots of cash, has a pretty clean balance sheet and is investing nearly every penny its makes on a net basis into new initiatives. The result long-term will hopefully (for the bulls) be a massively profitable technology success story.

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In the short-term, however, the result is a company with very rich valuation metrics, positive cash flow and minuscule current earnings.

At the current stock price, the company trades at a price-to-earnings of over 150, a price-to-book of more than 11.01, a price-to-sales of more than 34.44 and a market capitalization that easily exceeds the company's enterprise value. The 150 PE is partially rationalized by the company's expected revenue and earnings growth for 2015 of 67.2 percent and 270 percent, respectively.

The Technical Outlook

Technicians note that with Friday's selloff the stock is officially in downside correction mode. They note, however, that the correction doesn't necessarily have to be long-lasting or too major in terms of further price declines, although either are absolutely possible. At this point, they note that Twitter is likely to test out one of three Fibonacci retracement levels -- either $48, $45.70 or $43.41 (from $50.40 as of Friday's close).

They do note, however, that a bounce in the market and the stock may occur before any of those levels being tested. Any bounce in Twitter that coincides with a broader market counter-trend rally could take the stock up to the $53.40-$55.99 range.

Twitter is absolutely vulnerable to a large amount of profit-taking if the market conditions continue to be difficult. However, as long as the stock does not violate $43.41, the long-term picture will remain bullish for Twitter.

At time of publication, Twitter traded at $49.70