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Why Twitter Stock Fell Sharply This Week

By Daniel Sparks – Oct 1, 2021 at 5:27PM

Key Points

  • Twitter's share price declined by almost 8% this week.
  • The social network saw double-digit percentage growth in monetizable daily active users year over year in Q2.
  • Though the stock has underperformed the S&P 500 recently, it's crushing the index over the past three years.

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Shares are now down 10% over the past three months. Is this a buying opportunity?

What happened

Shares of social network Twitter (TWTR) took a hit this week, trading as much as 9.9% lower at one point. By the end of the week, shares were down by a total of 7.7%.

The stock's decline was likely primarily related to a tough week for tech stocks in general -- the tech-heavy Nasdaq Composite fell by about 3%.

A chalkboard sketch showing a stock price declining.

Image source: Getty Images.

So what

It's been a difficult three months for Twitter. The stock lost about 10% even as the S&P 500 rose by more than 1% over the period. This reflects a largely challenging period for growth tech stocks like Twitter, many of which are underperforming the market recently. Based on the pricing trends for dividend-paying large caps versus growth tech stocks, some investors appear to be moving away from the more volatile tech sector and investing instead in slower-growing companies with greater cash flows relative to their valuations.

Whatever the case, it's not like long-term Twitter investors are doing poorly. Its shares are up 120% over the past three years and 40% in the past 12 months, easily beating the S&P 500 and Nasdaq Composite across both periods.

Now what

Twitter is slated to deliver its third-quarter report late this month, and investors expect to see extremely strong sales growth. On average, analysts are modeling for revenue of $1.28 billion, compared to its $936 million in revenue in the prior-year period.

Long-term investors should largely ignore a stock's short-term volatility when trying to decide whether or not to buy it. Instead, they should assess stocks based on their fundamentals. Based on Twitter's strong momentum in both user growth and sales growth, this could be a good buying opportunity.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

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