Here’s How Much Upside Twitter Stock Has if Musk Actually Buys It

Stock Market

Twitter (NYSE:TWTR) has been volatile over the last few weeks and so has Tesla (NASDAQ:TSLA). What’s the common denominator? Elon Musk. After initially hesitating to do so, Twitter eventually agreed to a sale with Musk. A rumor that once sent TWTR stock higher by 38% in two days has actually come to fruition. Despite this, Twitter is not trading at the buyout price. In fact, it’s still well below the buyout price of $54.20.

Twitter shares initially rocketed higher on Apr. 4 and 5 on news that Musk was making a serious offer for the company. After plenty of back and forth — and lots of drama — TWTR stock faded from the mid-$50s to the mid-$40s as doubts began to grow. Even after they agreed to a sale, those doubts continue to swirl.

Perhaps because the financing situation is not as clear-cut as say, a Microsoft (NYSE:MSFT) or Salesforce (NYSE:CRM) buying the company. Maybe it’s because Musk has had buyout talks before — remember “taking Tesla private at $420?” — although this one is obviously much more serious.

In any regard, the price action in Twitter stock is not indicative of a looming buyout. If one were to buy TWTR stock today and the sale does go through, they are looking at gains of roughly 11.5%. That’s pretty easy money if the deal does go through. The risk is obvious, though.

If the sale falls apart for whatever reason, Twitter shareholders don’t have much of a catalyst. Sure, there’s the $1 billion break-up fee — which is greater than the last four years of earnings before interest and tax combined — but that’s not going to matter to the stock price.

That’s particularly true as the company seems…directionless. It recently acknowledged that it has been overstating its user base for several years, while the list of complaints from users continues to grow.

If the deal doesn’t go through, we could be looking at a gap-fill down to $39.85 — at the very least. While the mid-$40s was support last month, that was as the deal was being doubted, but still a possibility. If it’s removed as an option, the stock will likely go lower. Otherwise, 11.5% in upside could be in the future for TWTR stock.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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