This week the Valens Securities team highlights our most interesting equity insight from across our tools and our analysis.
Contrary to market perception, TWTR has been able to stabilize profitability in the last few years and that is forecasted to continue, and while management concerns may limit near-term upside, low expectations point to long-term upside
TWTR is trading at a 22x UAFRS-based P/E (Fwd V/E’), which initially appears expensive. However, it is actually at the low end of historical valuations, as is the company’s 2.9x UAFRS-based P/B (V/A’). The market is pricing in very low expectations for TWTR relative to history, with expectations for UAFRS-based ROA to fall from 13% in 2016 with 13% to 14% levels historically) to 7.5% slightly above cost-of-capital levels over the next several years. The market is also expecting TWTR to see Adjusted Asset Growth continue to slow, falling to 25% a year. This is not unreasonable, but is also roughly half the growth rate of the past two years.