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Facebook Stock Has No Momentum

Facebook (FB) has no momentum right now. The stock was trading at $26-$27 level most of the year before dropping to $23-$24 in May. Although it’s down, the long-term outlook for Facebook is good. Facebook’s revenue rose 38% last quarter and the company has figured out how to make money from mobile users by putting the ads in with the stories. Mobile ad revenue was 30% of total ad revenue last quarter, up from 23% the quarter earlier.

Now Facebook’s problem is the company is throwing money towards its long-term goals and not banking the money right now. Estimates have been falling a little each quarter for a year now — that’s hurting the stock. But things are looking good for 2014, this may be a good one to get into now. If you can sit and wait.

One Year Chart

Profit growth was 20% last quarter (news outlets have 0% growth in some cases due to one-time charges) and the company missed by a penny. Estimates show 17% growth coming the next two quarters. With a P/E of 42, its not surprising the stock’s dead money right now. A P/E of 42 is high for 17% growth.

What I don’t like in this chart is FB’s 2013 profit estimate (right) of $0.57 is barely more than the $0.53 the company made last year. I remember seeing a while back FB was supposed to make $0.70 in 2013. From $0.53 to $0.57? That’s not much growth. FB clearly isn’t on LinkedIn’s (LNKD) level.

Fair Value

If the stock sells for 40 times earnings next year, and makes the $0.77 projected (big if), it will be a $31 stock. 2014 estimates have come down in each of the last four quarters, from $0.85 to $0.77. 2013’s have dropped from $0.64 to $0.57 during the same time.

Sharek’s Take

Shares of FB don’t have momentum right now, but I feel the stock will push past $30 next year. Trouble is there’s nothing here that is pushing the stock higher. Maybe FB gets a P/E of 30 next year and makes $0.65? That’s a stock around $20. with FB at $24 now that’s around 20% downside risk. Not bad considering you’re getting one of the top growth companies around.

I will look into buying FB in the near future, but the lack of momentum makes it tough to get into now unless you have a diversified portfolio. One with around 25-30 stocks, that way the other stocks can carry the returns until FB gets its momentum back.

View the Earnings Table here.
View the Ten Year Chart here.

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