Can Facebook Stock Rally 15% to $230?

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When it comes to FAANG, Facebook (NASDAQ:FB) has been one of the top performers in the group. In 2019 alone, Facebook stock has been on a bit of a crusade, surging more than 53% to just above $200.

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Is there still time to buy Facebook and more specifically, can Facebook stock price rally more than 15% to $230?

Analysts at Piper Jaffray initiated coverage of FB stock earlier this week. They started the stock with an “overweight” rating and a $230 price target. For what it’s worth, they also initiated Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) with an “overweight” rating and assigned a $1,500 price target to GOOG stock.

Although Facebook is still enduring negative headlines, FB continues to benefit from improving cost trends, Piper reasoned. E-commerce and advertising trends should fuel the company’s top-line growth, while FB should also benefit from free cash flow gains, the firm added.

So can Facebook stock price climb to $230? Let’s explore the issue, starting with the charts.

Trading FB Stock

chart of FB stock
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Source: Chart courtesy of StockCharts.com

In 2019 FB stock has done great overall. In comparison to its FAANG peers, it’s also done quite well. But remember, this name has been mired in controversy, from lawmakers’ criticism to the  concerns of the public over its usage of personal data. However, that hasn’t slowed its user growth or Facebook stock very much

In October, FB stock corrected lower, but found support at $175 and the 200-day moving average. From there, it went on a steady, ongoing  ten-week uptrend.

If Facebook stock price can hurdle $200, it has a shot at taking out the prior week’s high of $203.80. Above that and the 52-week high of $208.66 is on the table. $230 is not necessarily the next target after $208.66, but the shares must eclipse the latter price before getting to $230.

On the downside, bulls want to see uptrend support (depicted by the blue line) and the 20-day moving average hold as support. If Facebook stock price falls below those points, the door is open to more selling. On the plus side, those two levels held as support when the market pulled back at the beginning of December.

If FB stock falls below those levels, see if Facebook stock rebounds after hitting the 50-day moving average and the $190 level. If not, it may need more consolidation.

Valuing Facebook Stock

Here’s the thing about Facebook stock: its valuation is reasonable.

I love some of the big growth stocks. Names like Veeva Systems (NASDAQ:VEEV) and Shopify (NASDAQ:SHOP) are great. But their valuations are tough pills to swallow, even for growth investors. The valuation of Facebook stock is much more reasonable.

It’s been a tough stretch for FB and CEO Mark Zuckerberg — and the difficulties aren’t going to disappear. The company still faces plenty of regulatory scrutiny and antitrust allegations. So do GOOGL and Amazon (NASDAQ:AMZN). In fact just this week, the EU announced it’s opening an investigation into FB’s data collection practices.

As a result of these issues,  Facebook has had to make some big changes and that’s hurt its profitability. For 2019, analysts, on average, expect the company to earn about $6.50 per share, down from $7.57 a year ago. FB stock is now trading at roughly 30 times the average 2019 earnings estimate, but on the plus side, it’s expected to return to growth in 2020.

The mean estimate calls for EPS of $9.18 in 2020, up 41%. While that’s attractive growth, even better is the fact that the shares trade at  roughly 21 times that figure. Along with average revenue growth forecasts in excess of 20% both this year and next year, and a fortress balance sheet, the bull case for Facebook stock is not hard to figure out.

If the shares were to trade at 25 times the average FY20 earnings estimate, Facebook stock price would jump to $230. That seems reasonable, especially if management can deliver and if the overall market avoids a painful tumble.

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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2019/12/can-facebook-stock-rally-15-to-230/.

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