<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Twilio (NYSE:TWLO) continues to move higher despite calls from myself and many other analysts to sell. The San Francisco-based communication-platform-as-a-service (CPaaS) company attracts buyers to its Twilio stock as it powers apps that make the likes of Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) possible.” data-reactid=”11″>Twilio (NYSE:TWLO) continues to move higher despite calls from myself and many other analysts to sell. The San Francisco-based communication-platform-as-a-service (CPaaS) company attracts buyers to its Twilio stock as it powers apps that make the likes of Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) possible.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Source: Web Summit Via Flickr” data-reactid=”24″>Source: Web Summit Via Flickr
Make no mistake, Twilio stock is a high-risk play, despite the company’s bright prospects. While I still do not recommend new buyers get into TWLO, I think it can remain a hold in the near-term for a particular type of investor.
Twilio Stock Moves Higher Despite Valuation
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="When I and most of my other InvestorPlace colleagues discuss Twilio stock, we inevitably point to the valuation. At a forward price-to-earnings (PE) ratio that stands at 463 as of this writing, no serious investor can ignore the multiple.” data-reactid=”27″>When I and most of my other InvestorPlace colleagues discuss Twilio stock, we inevitably point to the valuation. At a forward price-to-earnings (PE) ratio that stands at 463 as of this writing, no serious investor can ignore the multiple.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="InvestorPlace – Stock Market News, Stock Advice & Trading Tips” data-reactid=”28″>InvestorPlace – Stock Market News, Stock Advice & Trading Tips
Twilio stock is not cheap, nor should it be inexpensive. Amid increasing competition, Twilio remains the leading CPaaS company. Moreover, with revenue growth expected to exceed 70% this year, one can easily see why it supports such a high valuation.
However, buying now implies that Twilio stock — with its triple-digit PE and price-to-sales (PS) ratio of 23 — can go even higher. Although that valuation could turn an investor into a bag-holder, several marijuana stocks trade at much higher PS ratios.
Conversely, traders cannot conclude that it has become a short. It has only fallen by about 7% from the all-time high of $151 per share that it reached two weeks ago. This leaves it near correction territory, but it remains too soon to tell whether the rally has ended.
So, what’s a trader to do?
My answer is nothing, regardless of whether or not you own Twilio stock. For traders not currently in the equity, I cannot discount the possibility of more upside. However, going back to that 463 forward PE, I have to think the rally has come close to running its course. Even if TWLO continues to move higher, those moves will bring an increased risk of reversal.
Watch This Trend to Hold TWLO
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="However, for those who currently hold Twilio stock and want to stay invested in it, I see a case for that too. Both of these opinions hinge on the 50-day moving average (MA), which stands at $135.88 per share as of the time of this writing. That comes in only a little lower than the current share price of around $140 per share.
” data-reactid=”37″>However, for those who currently hold Twilio stock and want to stay invested in it, I see a case for that too. Both of these opinions hinge on the 50-day moving average (MA), which stands at $135.88 per share as of the time of this writing. That comes in only a little lower than the current share price of around $140 per share.
However, this line continues to trend upward. Also, in early April, the trading price and the 50-day MA began to converge more frequently. Since then, the price of TWLO has not fallen below this line for more than a few days.
Admittedly, that remains a risky strategy that may yield little reward. I think investors can find easier ways to make gains in other equities. Hence, I only recommend this strategy for those who can tolerate high risk levels.
Still, as long as TWLO can maintain this tenuous peg to the 50-day MA, I think it rises slowly. If the stock falls below the MA for more than a couple of trading sessions, investors probably need to sell, regardless of risk tolerance.
Concluding Thoughts on Twilio Stock
Amid the risks, Twilio stock remains a “hold” for risk-tolerant investors. At a forward PE of 463, low- or even moderate-risk investors should stay away from TWLO. Its current multiple substantially increases the risk of becoming a bag-holder. Still, the propensity to move higher makes TWLO stock a dangerous short.
That said, Twilio stock has shown a tendency over the last three months to stay near the 50-day moving average. For now, that average continues to move higher, indicating TWLO will move higher along with it. Still, if that correlation or one’s risk tolerance breaks, get out as soon as possible.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.” data-reactid=”54″>As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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