Why Facebook Stock Slipped Today
For the second consecutive day, the actions of Facebook (NASDAQ: FB) stocks are down again. After battling a rising tide to close down 5% on Monday, Facebook stock plunged again on Tuesday, first falling over 5%, then falling back to a loss of around 2.9% at 2:30 p.m. EST .
There is no apparent reason for today’s decline – no downgrading of analysts, no lowering price targets on Wall Street, and no bad news about the earnings (or otherwise) of Facebook itself. . On the contrary, as Reuters reports today, what we seem to be seeing over the past two days of unexplained sales is that “investors are continuing[ing] to withdraw money from some of the big tech companies that have benefited the most from the pandemic. ”
Facebook certainly seems to fit this definition. In the early days of COVID-19, Facebook grappled with concerns that while homebound consumers spent a lot of time online, producers were reluctant to pay for advertising on social media such as Facebook because no one did not shop.
This is no longer the case. Facebook’s sales rose 22% in the third quarter and its profits rose 29%. Shares of the company, meanwhile, have performed admirably during the pandemic and are now up 43% in the past 52 weeks.
Is this latter fact reason enough to sell Facebook shares, now that Pfizer found a vaccine against the coronavirus, and is the beginning of the end of the pandemic in sight? Opinions may differ, but I’m voting yes – and I’ll tell you why.
On the one hand, Facebook stock at 33.4 times earnings is not the most expensive stock in the block. Indeed, the P / E of S&P 500 overall is currently 35.7. On the flip side, however, analysts who follow the stock are forecasting long-term earnings growth of less than 18% for Facebook, and at that rate of growth the stock is costing almost double what I think. that it should be called a good deal.
Combine that with the fact that at $ 19.2 billion in free cash flow, compared to $ 25.3 billion in reported net income (according to data from S&P Global Market Intelligence), Facebook’s stock is no longer almost as profitable in cash as it appears to be when priced against its accounting profits, and I’m afraid the Facebook stock has finally become too expensive to own.
For today, at least, it seems a lot of investors agree with me on this.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.