Facebook (NASDAQ:FB) stock had a rough 2018, falling more than 25% and ending the year near its lows. To be fair, most stocks limped into the end of the year, but FB stock’s stumble was exacerbated by the company’s user-privacy issues throughout the year and fallout from the Cambridge Analytica scandal.
All that said, FB stock has been trading well since its December lows. In 2019 alone, FB stock is up more than 31% and it’s easily outpacing most of its FAANG peers. Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) — the last of which is breaking out — are up between 11% and 13.5% on the year. Netflix (NASDAQ:NFLX), though, is up 32% so far in 2019.
Still, FB shouldn’t be ignored. Let’s take a closer look at Facebook stock.
Valuing FB
If Facebook CEO Mark Zuckerberg didn’t scoop up Instagram for $1 billion back in 2012 (that move, by the way, was heavily criticized) — I don’t know what kind of trouble FB stock would be in. Instagram has surged in recent years, topping 1 billion active users in June 2018. The valuation of the website would be enormous if it was not tucked under the Facebook umbrella. Instagram has kept FB stock alive and has been a major growth catalyst for FB.
On the other hand, while analysts on average expect Facebook’s revenue to surge 23.5% in 2019, analysts’ consensus estimate calls for flat bottom-line growth this year. If the company is incredibly disciplined and really excels, perhaps its earnings will rise 5%-10% in 2019, igniting Facebook stock. Given that FB — despite all of its issues — has beaten consensus EPS estimates 20 quarters in a row, that scenario could unfold.
Analysts are more optimistic about the company’s 2020 outlook, though. On average, they expect Facebook’s sales to jump 21% and its earnings to surge 17% next year.
Investors also have to keep Facebook’s balance sheet in mind. The company has $41 billion in cash and short-term investments, and no debt. As a result, FB has one of the best balance-sheet in the market and is very flexible.
Last but not least, FB stock was upgraded by Nomura yesterday. In a highly complimentary note, Nomura analysts raised FB to “buy” from “neutral” and upped its target on the shares from $172 to $215, implying 25% upside as of yesterday’s close. The company’s “Stories” feature was the driving catalyst of the upgrade, causing the firm to increase its EBITDA estimates for 2019 and 2020. The question is, can Facebook stock get to $215?
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Notice how Facebook stock has been trending higher since its December lows. When the company reported its fourth-quarter earnings in January, FB stock gapped higher but petered out after reaching the $172 mark. Six weeks later, that level is still giving bulls a headache.
Notably, though, when FB stock did rally higher on its Q4 earnings, it exceeded the lows that it had reached in the wake of the Cambridge Analytica scandal. That was an important move, as the $150 mark had been a level of resistance. After zooming past $150, FB stock is now above all of its major moving averages and threatening to rally by an even larger amount.
Again though, can Facebook stock get to $215? That is essentially the stock’s 52-week high. It can get there, but it will take time. First, Facebook stock needs to get through $172 (which is also the 50% Fibonacci retracement level). If it can, expect some selling of FB between $182 and $185.
If Facebook stock can eventually clear this area, perhaps with some help from earnings or other favorable developments, it can begin to fill that giant gap from last July. To fill it, the shares need to get back to…$215. Go figure.
So far, FB is on the right path, but its recent momentum will need to continue for it to have a chance of reaching that mark.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AMZN, AAPL and GOOGL.
