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Imagine Twitter at $140 Per Share

NEW YORK (TheStreet) -- I would love to be the first person to slap Twitter  (TWTR - Get Report) with $140 price target. That number seems fitting, doesn't it? But sadly, that's not likely to happen any time soon. Not from me or from any of  the 30 brokers who cover the social media giant.

Twitter shares closed Tuesday at $31.85, falling close to 18%. The stock, which traded as high as $74 in December, went public at $26 last November. But since Twitter peaked, shares have plummeted close to 60%, and are down 50% year to date.  Tuesday's punishment was out of the ordinary.  But that doesn't mean investors should rush in to buy.

The catalyst for Tuesday's decline was Twitter unlocking its shares that were prohibited from being sold until six months after Twitter's initial public offering. According to The Wall Street Journal, there were potential 400 million shares that could be sold. 

I don't want to get too technical with IPO rules and lock-up expiration, but as part of early standard start-up procedures, companies will typically issue millions of shares to (among others) employees, venture capitalists and mezzanine investors. As a way to prevent shares from flooding the market since these early shareholders will want to cash out, a ban on selling, or lock-up period was created.

In this case, Twitter had only averaged a little over 13 million shares traded per day. Tuesday more than 90 million shares exchanged hands, more than 7 times its normal volume. Clearly, the early buyers couldn't wait to cash out.  The pressing question now is to what extent can Twitter rebound from a day like this. And how much of an opportunity is there for new investors.

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