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Twitter (NYSE: TWTR) stock took a 13% plunge on Friday in its biggest one-day drop since it went public on Nov. 7, a blip that should warn investors of bad things to come for the over-hyped social media sweetheart.
A downgrade to "Sell" by Macquarie Equity research analyst Ben Schachter on Friday was the likely culprit. The stock opened at $72 per share and closed at $63.75.
"Nothing has changed in the fundamentals to justify the sharp rise," Schachter told clients.
Schachter is referring to TWTR stock's dramatic thrill ride since it went public. Twitter priced its IPO at $26 per share and nearly doubled in trading on its Nov. 7 debut. It ended the day with a 72.7% jump to $44.90 per share. The frenzy drove the seven-year-old microblogging company's market cap to $25 billion.
December has been another winning month for Twitter. Shares zoomed from $40.78 per share on Dec. 2, to $60.01 per share on Dec. 20, for a 47% rise.
Then last week happened.
It seemed like a merry Christmas for Twitter stock, which went up 22% from Monday to Thursday during shortened holiday trading hours. Additionally, 82.7 million shares were exchanged, making Thursday the stock's busiest day of trading since its IPO.
But another record was set with Friday's 13% plunge – Twitter stock's biggest one-day drop since its IPO.
Besides Schachter's downgrade, S&P Capital Scott Kessler reiterated his "Sell" rating, stating that the stock was still overvalued.
"I think the stock has a hard time being $40," Money Morning Chief Investment Strategist Keith Fitz-Gerald said in an appearance today (Monday) on FOX Business' "Varney & Co." "Customers are leaving in droves, you've got a complex thing they can't monetize, and the next best thing is a click away."
On the week, Twitter ended up with a 6.2% gain. TWTR is down 3.4% in trading today, at $61.56.
With this bull market growing ever long in the tooth, it's just as important to know which stocks to avoid as which ones to buy – and we're still not sold on Twitter.
What to Consider Before Investing in Twitter Stock
The main question for investors who will consider investing in Twitter stock is this: How will Twitter make money? The answer – and execution – will make or break Twitter stock.