Tuesday was a bad day for Twitter (NYSE:TWTR) investors -- again.

For the second time in as many weeks, Stifel Nicolaus has downgraded the tech star. And whereas last week, the worst Stifel would say about Twitter is that "we don't see how the departure of the heads of three major business divisions can be viewed as a positive in the middle of an attempted business turnaround," and downgraded the stock only to hold, this time, Stifel is going full-bore negative on Twitter:

"Twitter is a product that has never fully developed into a sustainable public company due to either poor strategy, poor execution, or that it was never destined to be one."

Contrasting Twitter's popularity with that of archrival Facebook (NASDAQ:FB), Stifel went on to point out that:

  • Facebook users spend twice as much time on Facebook as Twitterers Tweet.
  • User growth is anemic, and could go negative in 2016.
  • And Twitter faces a lot of "obstacles" before it can become a "serious contender" to Facebook and other, more successful Internet companies.

But really, it's that first comment that stings.

Uh-oh, they used the "S" word
Questioning Twitter's ability to become sustainable is more than just a choice use of adjectives. What Stifel has said, in essence, is that Twitter might be headed for bankruptcy if things don't turn around soon.

And the numbers bear that out. Consider:

Although Twitter added 4 million new users in its last reported quarter  and grew revenue 58%, profits remain elusive. In fact, according to data from S&P Capital IQ, Twitter has never earned a full-year profit, nor generated positive free cash flow, either. And generally speaking, companies that can't earn a profit do tend to go out of business sooner or later.

Looking forward to Twitter's next quarterly earnings report, due out next week, my Foolish colleague Daniel Sparks notes that "expectations aren't very high" for growth in users, while revenue growth is expected to slow sequentially from Q3.

But does this necessarily spell doomsday for Twitter?

Let's go to the tape
There's a lot to suggest in Stifel Nicolaus's record that the analyst is right, and that Twitter is in trouble. After all, this banker ranks in the top 10% of investors we track on Motley Fool CAPS. And yet, even Stifel isn't perfect at the stock-picking game.

According to our records, only 49% of Stifel's recommendations made over the past 10 years have actually outperformed the S&P 500. What's more, Stifel has proven even less accurate at pegging prospects in the ever-changing Internet industry. For example:

Company

 

Stifel Nicolaus Said:

CAPS Says:

Stifel Nicolaus's Picks (Beat) Lagged S&P By:

Rackspace

Outperform

****

89 points

Akamai

Outperform

***

(27 points)

Twitter

Outperform

***

(68 points)

The upshot: Although a handful of big winners such has Rackspace have helped Stifel to rack up a positive score outperforming the S&P with its Internet picks, on balance, the analyst's record in this sector is still pretty iffy. Only 47% of its picks have actually panned out -- and so far, Twitter hasn't been one of them.

Abandoning ship too soon?
Personally, up until now I've always been more negative on Twitter than has Stifel. And yet, where Stifel sees reason to panic today (and I admit there's reason aplenty), I actually see a slight glimmer of hope that Twitter will turn things around.

Now, I can't emphasize enough: This glimmer is dim. But for what it's worth, here it is: Taking a close look at Twitter's cash flow statements from the past few years, while it's clear that Twitter hasn't succeeded in earning a profit, nor generating positive free cash flow from its business, it is at least getting close.

Over the past 12 months, Twitter generated $327 million in positive cash flow. Granted, the company's $336 million in capital spending ate up all that cash (and more). But even so, this is the closest Twitter has gotten to "breakeven" cash profits -- ever. If next quarter's report shows that Twitter has once again grown its cash production faster than its capital expenses rose, then that will lend strength to the argument that the company's actually on the right path to eventual profitability.

On the other hand, if cashflow takes a U-turn, and the gap between cash produced and cash consumed begins to widen again -- look out below. That will suggest that at long last, Stifel is calling it right on Twitter, and the stock truly is a sell.

Stay tuned.

...Oh, and if you positively can't resist the urge to buy something before Twitter releases its update, use the time to take another look at Facebook. While at $330 billion in market cap, Facebook is the furthest thing from cheap, but the company generated $6.1 billion in free cash flow produced last year, versus just $3.7 billion in reported profits. That's a clear indication that, if Twitter might be on the path to sustainability, Facebook has gotten there already -- and is sprinting far ahead.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 251 out of more than 75,000 rated members.

The Motley Fool owns shares of and recommends both Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.