Facebook, Inc. (NASDAQ:FB) has begun to rise again. The Facebook stock chart took a beating following the Cambridge Analytica scandal. However, with a solid earnings report, FB stock gained some of that value back. Now, as FB recovers from the lowered focus on ads and Cambridge Analytica, FB again resumes its growth path. FB currently trades 10% below its 52-week high. I believe FB can recoup lost advertising revenue and gain the 10% back in the near term for three reasons.
Reason 1: Less Emotion-Driven Trading
The year 2018 has proven itself to be a roller coaster ride for the Facebook stock chart. As many might recall, the downward moves on the Facebook stock chart began with negative FB stock news. CEO Mark Zuckerberg announced the FB News Feed would have more of a “friends and family” focus. The equity sold off further on Facebook’s alleged role in influencing the 2016 presidential election.
However, traders need to exercise perspective in this regard. InvestorPlace’s Josh Enomoto correctly stated that traders made an emotion-driven decision in selling off FB. The theory that Russian hackers influenced the outcome of the 2016 Presidental election has persisted in the news cycle for months. For that reason, stock analysts might understand why even the hint of involvement from the social media giant might motivate investors to sell the stock.
Still, I think sellers failed to see the big picture. The idea that FB, which is having to manage perceptions of anti-conservative bias, influenced the election in favor of President Trump comes across as lacking credibility. Further, as Enomoto stated in his analysis, “who did the actual voting?” Fortunately for FB stock investors, the emotions that drove this downward move have begun to fade.
Reason 2: The Facebook Dating App
While arguments about Facebook influencing elections may lack credibility, its strategic moves do not. Much like its big tech counterpart Amazon.com, Inc. (NASDAQ:AMZN), FB strikes fear amongst potential competitors. Twitter Inc (NASDAQ:TWTR) and Snap Inc (NYSE:SNAP) have reeled under Facebook’s competitive threat. FB’s next victim has become Match Group Inc (NASDAQ:MTCH). MTCH stock fell 18% upon Facebook’s announcement of its dating app.
MTCH investors should be afraid. FB already has the most of the data needed to present its users as dating prospects. With the new app, users will have an easier time filling out a profile. Also, they will not have to pay high fees to belong to a dating site. This app serves as another powerful way to apply FB’s massive data trove. It also opens up a new avenue to sell ads. Furthermore, FB thrived through the years because users voluntarily handed over personal data. A dating app gives users reasons to share more data — sometimes of a very personal nature — which FB could find more ways to monetize.
Reason 3: Compelling Chart and Fundamentals
If dating apps or the emotion-driven trading decision of recent months do not show FB stock as a buying opportunity, perhaps other factors will. The Facebook stock chart saw a dramatic reversal to the upside following earnings. With the earnings beat, both the moving average convergence divergence (MACD) and the stochastics indicate the uptrend has returned.
Even after the 9% increase in earnings, FB stock trades at a forward price-to-earnings (PE) ratio of 23. Moreover, earnings estimates project an average annual growth rate exceeding 20% over the next three years.
The Facebook stock chart and the fundamentals show FB can rise 10% to return to its 52-week high. More importantly, it can return to the growth trajectory that has given FB one of the largest market caps in the world.
Concluding Thoughts on FB Stock
Facebook stock will rise back to its 52-week high and beyond for several reasons. FB stock took a hit first by reducing ad space and second, by its supposed role in the Cambridge Analytica scandal.
However, both the earnings numbers and the stock chart show this correction in Facebook was driven by one thing — feelings. The latest earnings report shows these feelings to be largely unfounded. Moreover, with the upcoming Facebook dating app, Facebook will be well-positioned to recoup lost ad revenue and gain new data which could they potentially monetize. Furthermore, the stock trades at a forward PE of about 23 and enjoys a near-term earnings growth rate above 20%.
As for the question of “Should I buy Facebook stock today,” both the fundamentals and the charts state an emphatic “YES!”
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
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