Facebook Inc (FB) — This social media giant is one of the largest Internet companies in the world based on users and its $200 billion-plus market cap. Since its highly anticipated IPO in May 2012, the stock has been a volatile performer.
S&P Capital IQ forecasts revenue growth of 36% for 2015, but spending on products, global expansion and infrastructure upgrades may limit earnings growth. Regulatory and legal issues could also cap growth, as could increasing competition.
Facebook warned investors that the fourth quarter could be a “difficult comparison,” and that 2015 would be a “significant investment year.” Capital IQ’s analysts estimate operating earnings will increase to $1.69 per share in 2014, up from $0.60 in 2013, and they project $2.02 in 2015. The stock is currently selling at 45 times the 2014 estimate versus a P/E ratio of about 16 for the S&P 500.
Beyond the fundamental concerns, my primary basis for a short sale recommendation in FB stock is the technicals.
The Profit Scanner service notes several internal indicators that are bearish, including momentum, slow stochastic, Williams %R and MACD. Additionally, shares crossed down through the 50-day moving average.
The Oct. 29 gap at $79.57 to $76.88 may be a breakaway gap down. If so, FB stock should soon fail to find support at its intermediate support line at Monday’s low of $73.70. A break there could result in a quick fall to the 200-day moving average at $68.02, which is my downside target and 10% below current prices.
Short selling is a speculative technique and not suitable for all investors. Traders should protect themselves against potentially unlimited losses by placing a stop-loss order at $80. And check with your broker for any special margin requirements and the ability to borrow shares.
