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Greenberg: Why a Shellacking Would be Good for Twitter's Stock

SAN DIEGO ( TheStreet) - In a Real Money piece yesterday Jim Cramer argues that, in Twitter's (TWTR - Get Report) initial public offering, there were more investors than flippers. (He took a swipe at Barry Diller, who earlier this week said just the opposite.)

Cramer writes, "I fear most that Twitter shares will get hammered again, and that you will proceed to sell."

To which I say: A good shellacking would be a good thing for Twitter -- because, as Facebook (FB - Get Report) has shown, such a move would reset the stock clock to real-world time.

Real-world time takes out all of the fluff and lets the company go about its business without any heavy focus on the stock.

The worst thing for a hot new issue is for it to reflect anything short of perfection, because then it risks the public humiliation of a stock-market spanking -- and an even-worse risk of getting viewed as damaged goods. (Good thing for Potbelly (PBPB) that its numbers didn't disappoint Tuesday night -- it got just the opposite reaction. Still, the stock's big leap today sets the stage for something worse if the company misses next time.)

For Twitter, the balloon has been deflated slowly, but the shares still remain in the ether, with a market value ahead of Netflix (NFLX) and Tesla (TSLA) and price-to-sales ratio well ahead of Facebook and Amazon (AMZN).

You can obviously slice this thing any way you like -- and, in the end, if and when Twitter is viewed as having missed, it will be missing whatever metrics Wall Street wants to use to validate its valuation.

What's clear is that analysts who are rolling out coverage post-IPO are hedging their bets: All four of them have come out with non-Buys. That compares with Buy ratings for most of the pre-IPO crowd.

My favorite is Robert Baird's Colin Sebastian, whose target is $48, well above Twitter's current price. In my book, if your target is above the current price your rating should be a Buy -- not Neutral.

But I get it: Like all of the others, Sebastian is saying the stock is likely to go lower before it goes higher. That's because they know chances of a misstep, or the perception of a misstep, are high.
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Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security.


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