After A 5% Drop, Can Twitter’s Stock Fall Further?

by Trefis Team
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Twitter’s Stock (NYSE: TWTR) has fallen recently after the fear of reduced future subscribers due to some political groups leaving the site. The stock has moved -4.7% in a week (5 trading days) to $46 now. But will the company’s stock resume its upward trajectory over the coming weeks, or is a fall in the stock imminent?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using 20 years of historical stock data, returns for Twitter stock average around 2.5% in the next one-month (21 trading days) period after experiencing a -4.7% movement in a week (5 trading days). Notably, though, the stock is likely to beat S&P500 returns by 0.7% over the next month (21 trading days).

But how would these numbers change if you are interested in holding Twitter’s stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Twitter’s stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF TWTR stock moved by -5% over 5 trading days, THEN over the next 21 trading days, TWTR stock moves an average of 2.5 percent, which implies an excess return of 0.4 percent compared to the S&P500.

More importantly, there is a 55.8% probability of a positive return over the next 21 trading days and a 50.9% probability of a positive excess return after a -5% change over 5 trading days.

Some Fun Scenarios, FAQs & Making Sense of Twitter Stock Movements:

Question 1: Is the average return for Twitter stock higher after a drop?

Answer:

Consider two situations,

Case 1: Twitter stock drops by -5% or more in a week

Case 2: Twitter stock rises by 5% or more in a week

Is the average return for Twitter stock higher over the subsequent month after Case 1 or Case 2?

TWTR stock fares better after Case 1, with an average return of 2.9% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Twitter stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Twitter stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – if the company is otherwise strong.

Overall, according to data and the Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For TWTR stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Twitter after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

TWTR’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Twitter stock by changing the inputs in the charts above.

While Twitter may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy. Another example is Apple vs Microsoft.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Team

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