Facebook, Inc. (NASDAQ:FB) Valuations Are Baffling

Facebook, Inc. (NASDAQ:FB) Valuations Are Baffling

Facebook, Inc. (NASDAQ:FB) Valuations Are Baffling

You’re about to read about technology stocks, but don’t expect to see a mention of the “B” word (for “bubble”).

Some smart analysts recently urged calm about the eye-popping stock market values of a handful of U.S. technology superstars, including Apple Inc. and Amazon.com Inc. The gist is that their lofty share prices don’t indicate a worrisome, late 1990s-like overvaluation, but largely reflect these companies’ rapidly climbing earnings and cash flow.

But just because the big tech stocks collectively aren’t in a “B” word, that doesn’t mean there aren’t weird things happening with individual company valuations. I want to point out two oddities, Facebook Inc. and Twitter Inc.

The short version: Investors have always paid more to own a share of Facebook’s future profits than they did for a slice of Google parent Alphabet Inc. Now they’re not. As for Twitter, its stock price has tended to be discounted to its more successful rival, Facebook. And now it’s not.

Facebook is growing twice as fast as Alphabet, and its profit margins are bigger. People are willing to pay a premium figuring that Facebook has more opportunity to grow revenue and earnings.

This valuation gap started to shrink late last year, and briefly flipped during Facebook’s Cambridge Analytica crisis in March — to the point where, for the first time, Alphabet’s stock was consistently more expensive than Facebook’s relative to the companies’ profits. Different measures of earnings also show narrowing valuation gaps.

Facebook’s ebbing valuation is due in part to concerns — encapsulated by the controversy over Facebook data harvested by Cambridge Analytica — that the company will have its wings clipped by regulators or that its profits will be crimped by the costs to clamp down on abuses of its social network.

Of course, one person’s squeezed valuation is another person’s buying opportunity, and the shrinking gap isn’t a secret to savvy tech investors. Slightly more of the analysts who follow Facebook recommend buying those shares today, versus the beginning of the year, according to data compiled by Bloomberg. Facebook’s valuation parity to Alphabet might in fact be a temporary blip. But if the company’s earnings power or growth are diminished, its shrinking market appraisal might be proven correct in the future. This might be Facebook’s new normal.

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

The projected upper bound is: 215.25.

The projected lower bound is: 200.64.

The projected closing price is: 207.95.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 32 white candles and 18 black candles for a net of 14 white candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

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 83.7226. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 13 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 65.62. 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 13 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 131.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 2 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 buy 3 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed up 0.400 at 207.320. Volume was 100% below average (consolidating) and Bollinger Bands were 29% narrower than normal.

Open High Low Close Volume___
207.810 208.430 206.450 207.320 321

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

Moving Averages: 10-period 50-period 200-period
Close: 201.12 191.84 179.88
Volatility: 31 24 34
Volume: 14,240,887 17,171,138 23,538,252

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 is currently 15.3% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. 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 5 periods.

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