NEW YORK (Real Money) -- Sometimes you just say, "I don't have an edge," and you just take a seat and watch the action unfold. That's how I am approaching Twitter's (TWTR - Get Report) report tomorrow. I just think there are too many factors at work to be informed both about how the company's really doing and how the company's stock is going to do with that report.
All through this earnings period we have seen the stocks of companies go higher that beat on the top and the bottom lines, meaning companies that exceed revenue and earnings estimates, and then guide higher for both sets of numbers.
Companies that beat only on the top and bottom lines, but didn't guide up have not done well if they have moved higher ahead of the report. Companies that have failed to beat on the top line and guided down -- let's call that the Xilinx (XLNX) example -- have been crushed to smithereens.
What's so amazing about this earnings season is that many companies have beaten all metrics and then raised all metrics, which his precisely why we have hit high after high in the S&P 500. There are always what I call record deniers, who say that revenues aren't that great or profits are boosted by job cuts, but the record deniers are in some parallel universe where what matters is being disputatious or political and not informative and helpful. They are brimming with bogus insight.
Now, into this revenue/earnings gauntlet steps Twitter, a company with no earnings and revenue growth that, while fast, is decelerating (an important point meaning that yes, yes, it is growing, but no, no, it is not growing as fast as it was).
The estimates show that it could make a little money this year and then earn 26 cents a shares in 2015 and 64 cents in 2016. It would be terrific if this company turned a profit this year. Those estimates give you a superior profit trajectory. But consider it against Facebook (FB - Get Report). I think Facebook should be able to do $3 a share in 2016 and it is selling for a little more than 25x 2016 numbers. Let's say Twitter does better than that 64 cents a share. Let's say it earns 70 cents, a very nice beat, and you slap on that Facebook price-to-earnings ratio and you get a $17 stock.
Certainly as one way to value the stock. The way that people have begun to do ever since the March selloff in high-multiple-to-sales stocks where we have returned to reward companies with solid earnings growth more bountifully than we have companies with excellent sales growth.
But let's value it the way that I think many people view see as more correct, even as I totally disagree with it, using monthly average user growth. If this is reaccelerating after a leveling off of growth after the company's first public quarter, then I think it can go higher in the way that many of the cloud and e-commerce plays bounced after they reported. They didn't skyrocket back to where they were before the slaughter, but they went nicely higher.