Facebook, Inc. (NASDAQ:FB) a modest earnings multiple creates an attractive risk-reward skew for investors

Facebook, Inc. (NASDAQ:FB) a modest earnings multiple creates an attractive risk-reward skew for investors

Facebook, Inc. (NASDAQ:FB) a modest earnings multiple creates an attractive risk-reward skew for investors

Facebook (NASDAQ:FB) has become one of the world’s most-criticized companies and one of the most controversial stocks on Wall Street over the past year. Yet despite the negative headlines and commentary, FB stock has been extremely resilient.

The Facebook bear case is all about the story. Young people don’t use Facebook. Regulators are going to make life miserable. Costs will continue to rise. Yet quarter after quarter, Facebook continues to post impressive financial numbers.

fourth-quarter revenue was up 30%. Net income was up 62%. Profit margin was up 23%. Average revenue per user was up 19%. Looking ahead to 2019, Facebook guided for at least a 40% increase in costs. But so what? Kelley says he wouldn’t be surprised to see Facebook’s operating margins above 38% by the end of 2019.

Growth numbers like these are a rarity on Wall Street, yet Facebook’s valuation is extremely reasonable. Facebook stock trades at a forward PE ratio of below 20. That’s not the type of valuation investors typically see in such a high-growth stock. It appears as if a significant slowdown in Facebook’s growth is already priced into the stock. That slowdown may actually happen in the next couple of years. But if it’s already factored into the FB stock price, downside is extremely limited even in a worst-case scenario.

On the other hand, Facebook may continue to surprise the market with its execution and ability to pull more growth rabbits out of its hat. In that scenario, FB stock could easily maintain its status as a market leader. At this point, the risk-reward skew is very appealing.

Overall, the bias in prices is: Upwards.

By the way, prices are vulnerable to a correction towards 160.12.

The projected upper bound is: 176.80.

The projected lower bound is: 156.38.

The projected closing price is: 166.59.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 3 falling windows in the last 50 candles–this makes the current falling window even more bearish.

A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 52.9701. This is not an overbought or oversold reading. The last signal was a sell 5 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.34. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 25 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -49. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 0 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed down -4.190 at 165.980. Volume was 100% below average (consolidating) and Bollinger Bands were 26% narrower than normal.

Open High Low Close Volume___
167.160 167.580 162.510 165.980 1,828

Technical Outlook
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 170.34 158.31 165.31
Volatility: 34 42 49
Volume: 16,115,735 19,478,278 24,177,386

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FACEBOOK INC A gapped down today (bearish) on light volume. Possibility of a Common Gap which usually coincides with a lack of interest in the security. Common Gaps are fairly irrelevent for forecasting purposes. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
FACEBOOK INC A is currently 0.4% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of FB.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on FB.O and have had this outlook for the last 8 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.

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