After reaching bear-market territory, Facebook (NASDAQ:FB) stock may have finally begun its turnaround. Since hitting a low on Dec. 24, Facebook stock has risen by over 35%. The company’s better-than-expected-fourth-quarter earnings and revenue helped fuel the recovery.
FB stock could pull back since the shares have risen by over 35% from their December lows.
However, given the stock’s valuation and the continued growth of FB, Facebook stock should be bought on any weakness.
Threats to Facebook Stock
FB seemingly spent most of 2018 dealing with one allegation after the other. From allegations of facilitating Russia’s election manipulation to charges of blocking data access to allegations of compromising privacy, the headlines helped cause a retreat of Facebook stock.
The probes of Facebook are continuing. On Friday, it was announced that the state attorneys general of Pennsylvania, North Carolina, and Illinois have begun to look into charges that FB mishandled user data.
Meanwhile, concerns about the European Union’s General Data Protection Regulation (GDPR) have weighed heavily on Facebook stock. Germany’s attempt to ban third-party data sharing is one example of how GDPR could significantly, negatively impact Facebook’s revenue.
FB Stock Is Bouncing Back
Fortunately, such probes and the rulings that come from them rarely deal crippling blows to companies. Now investors no longer appear to care about how these issues will affect Facebook stock. In the end, little has changed, as FB continues to dominate much of the social media sphere.
Twitter (NYSE:TWTR) remains a niche player, as does the LinkedIn platform owned by Microsoft (NASDAQ:MSFT). Others, like Snap (NYSE:SNAP), continue to suffer as they are dominated by FB. Even Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) could not compete, as it decided to shut down Google+.
As a result, it looks like we’re finding out that the swoon of Facebook stock has turned into a buying opportunity. Like many tech stocks, Facebook hit its near-term lows on Christmas Eve. Since then, it has begun to recover.
There’s Still Time to Buy Facebook Stock
The company’s recent fourth-quarter earnings report bolstered the turnaround of FB stock, and it reminded investors of the continued strength of Facebook stock.
The company’s revenue rose more than 30% year-over-year. Its profits beat analysts’ consensus estimate by 20 cents per share and rose by 65% year-over-year. Through the turmoil, users and advertisers stuck with the platform.
The good news is that buyers still have time to buy FB stock on weakness. Facebook stock is still 24% below its 52-week high, and its forward price-earnings ratio is 22.5.
Considering that Wall Street forecasts average profit growth of 17.7% per year over the next five years, FB stock trades at a reasonable multiple.
Certainly, FB stock still has risks. Still, no peer has come close to challenging Facebook’s preeminence in the social-media sphere. In the end, investors rarely get to buy stock in a dominant, fast-growing industry leader for as little as 22.5 times earnings. That in itself makes Facebook stock compelling.
Final Thoughts on FB Stock
With its recovery in full swing, and Facebook stock still trading at a reasonable multiple, FB stock should be bought at current levels. After its quick run-up in recent weeks, FB stock could pause or drop modestly. However, FB has likely already bottomed and will probably advance in coming months.
Despite the probes by multiple governments, users and advertisers have not abandoned the platform, as shown by the company’s massive Q4 revenue and profit growth. Moreover, no company has successfully challenged Facebook outside of some niche areas.
The worst year in the history of FB stock is over. In 2018, we learned that governments will probably continue to investigate Facebook, and FB will still face challenges.
We also know that nobody in the market can challenge Facebook. We also can probably assume that it will not be destroyed by government probes. Given these realities, investors should see the investigations as a chance to buy high growth at a low price, not as a reason to run away.
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.