Twitter: Should You Buy It?

Some stocks just never allow you to gain an edge through fundamental research -- even by the most rigorous analytical minds.

These stocks become so popular that they become disconnected from any sort of fundamental valuation, and you can simply hold your nose and buy along with the crowd. Or you can be gutsy and look to sell shares short.

Score one for the fundamental analysts. Heading into quarterly results, Twitter (NYSE: TWTR) was a major focus for short sellers, as I noted three weeks ago. The short interest has risen further since that article was published, to 32.7 million shares by mid-January.

And these short sellers may be tempted to lock in gains after shares plunged more than 20% this week. But they shouldn't close out those short positions just yet -- Twitter has an additional 20% to 25% downside from here.

Twitter faces two challenges: It needs to sharply boost its audience, and it needs to figure out how to make much more money off of that audience. These are concerns I spelled out late last month on our sister site Among the reasons why this stock may be headed to just $40 (or lower): Continue reading "Twitter: Should You Buy It?"