Twitter shares are cratering after the social media site said cash flow this quarter would be well below current Wall Street estimates. Traders shouldn't bet on a quick rebound, history shows.
The company is one of those stocks that seems to get more attention from traders than it deserves because they use the service. Not to mention that President Donald Trump has made it his insult delivery mechanism of choice, a reason why one analyst recommended the stock on Wednesday.
So traders may be inclined once again to buy the Twitter dip on the simple notion that since they like the service, it must eventually figure out a way to grow users, revenue and profit more than it has now (or at least find a bigger company that can). But Twitter's history shows traders may want to stop falling into that trap again.
Using hedge fund analytics tool Kensho, CNBC PRO found that Twitter dropped 9 percent or more during a single day of trading on 11 occasions during its life as a public company. Here's what the shares did one week later, on average, if you bought on the close of those big down days:
And here's where the stock was one month later, on average:
Bottom line: History shows buying the Twitter dip on faith doesn't work. This time CEO Jack Dorsey and crew may need to actually show they are righting the ship.
Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.