Shares of Facebook Inc (NASDAQ:FB) have been on fire in 2017, with shares up 59% so far. However, FB stock price could be setting up for even more gains this year as shares teeter on a potentially large breakout.
First though, why is Facebook a buy in the first place?
FB Earnings
You don’t always need an amazing fundamental story to buy a stock. Sometimes the risk/reward is right even on not-so-great names. I personally prefer to blend the two though — that is, sound fundamentals with solid technicals. In Facebook’s case, it has got both.
On Nov. 1, Facebook beat earnings per share and revenue expectations. Despite three straight sessions of rallying, FB stock price leapt to new 52-week and all-time highs just over $183. Following that initial surge, investors chose to let Facebook stock drift sideways to lower throughout the month, even with FB crushing earnings estimates by more than 24% and churning out 47.4% revenue growth.
Last Friday though, shares eked out new highs. Should investors buy in now? It’s hard to say, “Yes! FB stock is an absolute buy, up almost 60% on the year and 660% over the past five years, now sporting a $530 billion market cap!”
But who’s going to get in its way? Twitter Inc (NYSE:TWTR) proved a long time ago that it wasn’t a formidable foe. Snap Inc (NYSE:SNAP) has proven to be a complete disaster on a number of levels. Neither will challenge Facebook for the top spot in the social media space for a long time.
Unlike in the past, investors don’t really have to worry about FB becoming the next Myspace. Much like they don’t have to worry about Apple Inc. (NASDAQ:AAPL) becoming the next BlackBerry Ltd (NYSE:BB).
It doesn’t mean that new apps won’t come along that teens fall in love with or that other mediums won’t present themselves. But Facebook, with 2 billion active monthly users, is here to stay.
Trading FB Stock Price
Click to Enlarge
First, $183 has become the level to watch. If FB stock price is able to close over $183 — its post-earnings breakout high — then shares can really gain some momentum. This gives short-term investors an attractive risk/reward, as they can use a close below $183 as their stop-loss.
For a trader or investor looking for a long-term outlook, consider adding or initiating a position between $173 and $176. This is where FB stock price should find support from three main levels: The 50-day moving average, current uptrend support and prior resistance now acting as support. All three of these levels can be found on the chart to the right.
Momentum (green circle) is turning positive and there’s still room to run before FB stock becomes overbought (yellow circle). While Facebook could feel some pressure on a broader market pullback, investors can maximize gains and curtail losses by noting its key levels of support.
The Bottom Line on FB Stock
Are you still asking, “Should I buy Facebook stock?” That depends. Know for sure that Facebook is crushing its competition right now and that’s unlikely to change anytime soon. Earnings and revenue growth remain robust and FB stock is trading like a beast right now.
Also know that Facebook may see decreasing profit growth going forward. During the most recent conference call, CEO Mark Zuckerberg said, “We’re serious about preventing abuse on our platforms. We’re investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits.”
Notably, we actually said an expense warning (nothing new from Facebook for the November quarter) could hurt the stock, but that it would be a buying opportunity. It didn’t cause much weakness though, as FB stock is already back to its previous highs.
Business remains solid and luckily, we have the risk/reward levels that make FB stock a solid buy going forward.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
