New Trade: Long Twitter (TWTR) and short Rackspace ($RAX)

By: ispeculatornew
Date posted: 02.09.2015 (3:00 am) | Write a Comment  (2 Comments)

      Post a Comment

Today I’m opening a 6th trade, finally getting close to being fully invested:) There wasn’t much change last week and with the earnings season coming to an end, volatility will likely decrease significantly which is more than welcome.

As is always the case you can see my long & short trades (from 2015 but also past years) here:

http://www.intelligentspeculator.net/livetrades

Let’s start off by looking at the numbers for today’s trade, two high priced stocks:

TickerPricePE RatioPE Next YearSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg GrowthSales 5Y Avg GrowthEPS 5Y Avg Growth
RAX47.4971.645117.233.78.530.9611.0823.2832N/AN/A
TWTR48.01N/A53.03111.013.665.72N/A2.32N/AN/AN/AN/A

With Rackspace being in such a high growth sector, you’d think that growth would be much higher but the below chart surprised me. Twitter has not been public very long so it’s still early to say how the company will be able to keep impressing investors:

TWTR Revenue (Quarterly YoY Growth) Chart

TWTR Revenue (Quarterly YoY Growth) data by YCharts

$TWTRLong Twitter (TWTR)

Ah Twitter has been absolutely fascinating to cover in the past couple of years. I’m a very active user (mostly as a reader) and it’s perhaps the app that I use the most on my phone. I think that in many ways, the company has been under-estimated from the very start. I’m not part of those that had doubts about Twitter’s ability to generate income but it’s still very nice to see that growth finally come in to play. It still boggles my mind though to understand why Twitter has struggled so much to grow its user base. It’s a complex product to use in some ways and is certainly a challenge to start off with compared to others like Facebook (FB) but you’d still think that after all these years, Twitter would have figured out ways to get more mainstream use. Hopefully that happens in the near future. It’s a very big problem but I still feel like it’s the only thing pulling back Twitter and have faith that they will figure it out. Can Twitter become an “ecosystem”? I have strong doubts but I also think the product is unique enough to remain relevant on all ecosystems. In the end, I’m not clear that this is a great buying point for Twitter bur if TWTR and RAX are both trading at almost identical forward P/E’s, it feels like a no brainer to me.

ycharts_chart

Next earnings release: April 29th 2015

$RAXShort Rackspace Inc. (RAX)

Rackspace is a very interesting company and while over the years I have become more positive about it, I remain very sceptical of a company that will have trouble distinguishing itself in a world with extreme competition. Yes, the cloud hosting/computing area is an extremely fast growing one but it’s also one where Rackspace is competing with the likes of Amazon, Microsoft, Box, etc. RAX has been up and down and my primary fear of course are the on and off rumours that RAX could end up selling itself.

ycharts_chart (1)

Next earnings release: February 17th 2015

Disclaimer: No positions on Twitter (TWTR) or Rackspace (RAX) but I will open this trade on the open

If you liked this post, you can consider subscribing to our free newsletters here


2 Comments

  1. Comment by Ken — February 9, 2015 @ 11:55 am

    Isn’t Twitter having significant management problems? It seems like every week there’s another story about this.

  2. Comment by Intelligentspec — February 9, 2015 @ 1:01 pm

    @Ken – Certainly a good point and it’s been one of the key reasons why I’ve held back so far but I do think the clear momentum in terms of product development is signs that things are turning around.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.