Facebook Inc (NASDAQ:FB) and its shareholders have enjoyed a friendly trend of late. But that same popularity may make now the right time to dislike FB stock and un-friend other bullish strategies before the good times go away. At least one analyst who piped up Monday seems to agree.
Following last Wednesday night’s earnings topper, Facebook rallied, showing that people apparently still like its shares. But is the sentimental tide about to change?
After crushing profit forecasts and delivering other metrics known to delight bulls, shares surged higher by more than 3% to finish Thursday’s session at $170.44. For their part, Wall Street analysts chimed in bullishly with favorable reiterations and above-market price hikes from the likes of Credit Suisse, Merrill Lynch and RBC Capital Markets.
More recent and over the weekend, Barron’s is also of the mind the Facebook party isn’t over just yet. The weekly financial publication wrote that shares of the social media giant could hand investors another 16% (to $200) within the next 12 months. By Barron’s reckoning, Facebook’s earnings growth will more than double profits over the next five years and act as a support for shares.
Facebook’s push into more lucrative advertising within its video, Instagram and Messenger platforms should also prove a competitive benefit and more than counter the associated increase in spending, anticipated slower revenue growth, as well as potential antitrust concerns.
However, on Monday, Pivotal Research doled out a rare “Sell” rating on FB stock, saying “The market is looking at upside potential without appropriately considering risks to growth.” Analyst Brian Wieser points out that digital ads are increasingly saturated, and kept a “$140” year-end price target on shares that implies roughly 20% downside from here.
Given the fairly long-in-the-tooth adulation for Facebook stock, on and off the price chart, I’m of a similar mind. If nothing else, now isn’t an opportune time to like shares with any conviction.
Facebook’s Chart
In looking at the weekly chart of FB stock since I last wrote about the company back on July 5,
there’s even less doubt about how well-liked shares are right now.
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Personally, I was a bit surprised by the technical action. In my defense, the staunch price action has delivered a very nice paper profit of $3.60 on our modified bullish fence strategy.
You should book these profits at this juncture.
FB stock is now positioned in a much steeper (and likely unsustainable) trend, with shares outside the upper Bollinger Band. As much, investors have increased incentive to take profits. That could spell bad news for our spread, with its max payout of $5 above $170 a share, but zero below $165 at expiration, if left open.
I can’t say with any authority whether selling would lead to a deeper correction. But Facebook is well-overdue for some nasty price action in an environment ripe for that type of behavior.
What to Do With FB Stock
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Right now, I view Facebook as a wait-and-see situation after a nice string of bullish victories using the options market.
However, if Facebook shares begin to feel the pressure, I would advise turning toward another modified fence. A “bear to bull” long put butterfly would also do the trick.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
