Massive Selloff Positions FB Stock to Add Friends Again

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FB - Massive Selloff Positions FB Stock to Add Friends Again

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Facebook (NASDAQ:FB) stock continues to suffer under a constant stream of negative news. This has hurt FB stock and led to calls on Mark Zuckerberg to relinquish his role as chairman. This also comes soon after Elon Musk left his chairmanship at Tesla (NASDAQ:TSLA).

However, this decline in the FB stock price to a valuation below S&P 500 averages. Also, analysts believe that the long-term growth trajectory of Facebook remains intact. Even if growth falters, the company holds a cash position which could open new doors. In time, the growth story of Facebook will likely overshadow the negative news and send FB stock higher.

FB Hit With a Steady Drip of Bad News

Facebook has spent most of 2018 facing the stock market version of Chinese water torture. The constant drip of bad news has continued to weigh on FB stock. Now, it trades almost 40% below its 52-week high.

The troubles began with the Cambridge Analytica scandal, which highlighted concerns that Facebook failed to protect user privacy. It also faced constant accusations of enabling Russian collusion in the 2016 election. This helped lead to the largest one-day market cap loss for any company in stock market history after FB reported earnings in August.

However, a crackdown on suspicious accounts has merely led to accusations from different quarters. Many right-leaning groups have accused FB of political bias. Also, after removing many alleged troll accounts, the deleted Federal Agency of News LLC is attempting to sue Facebook. This firm, which holds ties to Russia, accuses the social media giant of curtailing its free speech rights.

A Buy Case for FB Has Emerged

That said, when a person (or in this case a company) gets hit over the head enough times, it eventually stops hurting. Such occasions often become a bullish sign for stocks, and FB could have now reached that point. After plunging to a low of $126.85 per share on November 20th, the stock traded above $136 per share by the next morning. This brought the P/E ratio to just over 18.

Also, analysts forecast an average growth rate of 17.9% per year for the next five years. Measured against this metric, the price-to-earnings-to-growth (PEG) ratio stands at just above one. Analysts see only 0.2% profit growth for 2019. However, Wall Street predicts double-digit growth will return in the years after that.

Furthermore, Facebook continues to run circles around its competitors. As more than one of my colleagues has pointed out, FB continues to hammer the beleaguered Snap (NYSE:SNAP) as youth who dislike the Facebook site turn to the company’s Instagram or WhatsApp platforms.  Yes, it likely lost the microblogging segment to the much smaller Twitter (NYSE:TWTR). However, to its credit, FB has not reacted by repeating the mistake Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) made with Google+.

Moreover, investors need to remember that FB holds over $41 billion in cash on hand. So far, they have mostly chosen to invest their money in stock buybacks. This cash hoard would finance a dividend if the company so chose. Dividends would attract a new set of investors to FB stock, likely boosting the equity.

This cash also gives the company the resources needed to either buy or create a new growth engine. Such a move brought Instagram and WhatsApp to Facebook. It could bring more revenue sources in the future. No matter how it allocates this cash, the company holds the resources it needs to turn itself around.

The Bottom Line on FB stock

FB stock will recover from negative news currently weighing on the company.

Privacy concerns and an alleged lack of vigilance on troll accounts took the equity to levels not seen since early 2017. However, Facebook-owned sites continue to dominate the social media space. Moreover, analysts also predict the return of double-digit profit growth. Furthermore, if that growth begins to suffer, FB holds the cash needed to orchestrate a turnaround.

For these reasons, I expect Facebook stock to reverse course and move higher sooner rather than later. Perhaps that turnaround has already begun.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/massive-selloff-fb-stock-friend-gains/.

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