Facebook Inc (NASDAQ:FB) has been slow to rebound since the market-wide correction in early February. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) have been rebounding with a vengeance. But does that mean we should bail on Facebook stock in favor of other FANG stocks?
Amazon is flirting — but seemingly just teasing investors — with a big breakout over $1,500. Nevertheless, we’re watching it.
Netflix, despite its great business model, will burn through billions in content costs this year. While it will no doubt add millions of subscribers as a result, its valuation is rich and its stock is already up ~50% so far — in 2018 alone!
So no, I don’t necessarily think that FB — or Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) for that matter — should be dumped in favor of the hot FANG stocks. Although, it does bring up the question, what’s wrong with Facebook stock?
Valuing Facebook Stock
The spread of fake news has concerned some investors over Facebook’s platform, as it challenges the integrity of the company. Further, there have been worries over what will happen to its News Feed feature. Even more broadly speaking, what would Facebook be like without the younger Instagram? Some wonder how much upside could be left in the legacy platform, as the overall company now boasts a $530 billion market cap.
But I think some of those concerns are overblown. Just like Apple Inc. (NASDAQ:AAPL) has not gone the way of BlackBerry Ltd (NYSE:BB), Facebook is not going the way of Myspace. In fact, one could argue that, aside from connecting some 2 billion people around the world, Facebook could disrupt a lot more in the way of news distribution, networking and content.
I don’t think Facebook will be as world-dominating as Amazon, but its prospects still look pretty bright. Speaking of prospects, analysts expect FB stock to generate earnings per share of $7.25 this year and $8.80 in 2019 (34% and 21%, respectively). It’s worth pointing out that three months ago, these estimates stood at just $6.62 and $8.13, respectively.
Facebook hasn’t missed an earnings estimates in more than four years, so it’s very possible that even though the above estimates have been raised, they are still too low. On the revenue front, analysts are looking for 36% in 2018 and 26% sales growth in 2019.
For all this, we’re paying a paltry 20.7 times 2019 earnings and 25 times this year’s earnings. Seem expensive? You can always buy The Coca-Cola Co (NYSE:KO) if that’s the case, which trades at a similar 19.5 times 2019 earnings.
Ultimately, FB stock isn’t that expensive given its growth profile.
Trading Facebook Stock Price
While the other FANG names have been bouncing pretty well since the mid-month bottom, FB stock price has been sluggishly trying to climb higher. That is, until Friday. Facebook stock jumped out of the gate and rallied 2.4% to end the week. And it cleared several important levels in that rally.
In the previous session, FB stock price had closed right on the 100-day moving average. Was it going to be resistance?
We got our answer just a day later, which was a resounding “no.” Facebook stock was also able to advance over the 50-day moving average on the move. Finally, with its rally over $182-ish, it’s looking more likely that this level will act as support.
As you can see on the chart, there’s a rough level of support near $173 that FB stock price has broken below in the past. Just like when this level was resistance though, the breakthroughs (or breakdowns) were short-lived. It’s solid support now and the hope is that $182 will be the same. In my view, it will largely depend on what the overall market does going forward. But so far, this move through $182 looks good for bulls.
Should $182 act as support, I believe it sets up Facebook stock to target its prior highs near $195. Momentum is now in favor of the bulls (blue circle), while the stock is far from overbought (blue rectangle). Because of this, FB stock price can likely go higher. Cautious traders can use a stop-loss at the 100-day moving average to limit losses.