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NEW YORK (
TheStreet) -- You have the right to overpay for a stock if you want to, Jim Cramer told
"Mad Money" viewers Thursday as the markets finally greeted the
Twitter(TWTR - Get Report) IPO.
But for Cramer, the stock remains "outrageously expensive."
Cramer said investors can pay two or three times what a company is worth if they choose, but he was trained to look at valuations when determining a stock's prices -- and that means looking a revenue and earnings growth and matching it to a company's peers. Using that logic, Twitter is only worth $28 a share, a far cry from the $45.10 where shares entered the market this morning.
Cramer said if
General Mills(GIS) were all trading at 18 times earnings but then one of them spiked to 25 times earnings, that would be a big warning sign because all three stocks have the same growth rates. That's why Cramer said to "take the money and run."
Cramer also reminded viewers that all but one of the social media initial public offerings from years past ended lower 12 months after their IPO. The lone exception:
LinkedIn(LNKD). So while the Twitter IPO didn't have the systemic problems that plagued the disastrous
Facebook(FB) IPO, the stock still remains highly speculative as these prices. Twitter only issued a sliver of their total shares outstanding, creating an unnaturally small float, which means its highly likely that more shares will be released in the coming months.
Yes, Twitter is a terrifically popular and disruptive service, Cramer admitted, but today the value of Twitter the company and Twitter the stock diverged and Twitter the stock is incredibly mispriced.
The Rest of the Market
The media may be all a-flutter with Twitter, but Cramer said there are still 6,000 other stocks that make up the market and most of them didn't have a particularly good day today. There are a number of things weighing on the overall markets, including rumors of tightening in China, which has sent the industrials sharply lower.