I love Twitter. It has been an enormous help to me as an active trader. While I subscribe to a news wire, if I want more color on a fast-moving stock, Twitter is usually my answer to quickly receiving pertinent information.
Twitter is so wonderful that many investors have ignored the financial metrics and bought the stock at valuations that are almost impossible to justify.
Recently I was asked what trading was like during the dot-com boom and bust. I responded that they can witness it first-hand by examining Twitter's stock price and earnings. It's not lost upon me that Twitter can grow, and the company is magnificent, but that isn't enough. Magnificent gets people to your site, but monetizing the traffic pays the bills.
Twitter doesn't make a profit and isn't expected to make one this year. According to Bloomberg, the company has estimated it will earn 18 cents a share in 2015.
The good news is the previous losses will help with taxes, but the bad news is that with earnings of 18 cents a share, the forward price-earnings ratio is well over 300. As a rule of thumb, stocks with an earnings multiple over 20 underperform their peers.
Revenue growth is meaningless because Twitter is starting from a small base compared to its share price. Momentum and day traders love the stock because it has significant volatility, but as a long-term investor, you should stay clear. At least until the company can demonstrate an ability to make money.