(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Facebook Inc. (FB) stock has already dropped by 27% from its 2018 highs. But now options trades and technical analysis suggest the stock falls an additional 6% and reaches a new 52-week low.
The shares of the social media company fell hard in March on user privacy concerns to a price of around $149. But the stock rebounded reaching a record high by July. However, shares plunged when the company noted during its second-quarter results that future earnings would fall short of expectations due to rising costs. (For more, see also: Facebook Seen Rising 7% Short Term as Profits Jump.)
Bearish Options Bets
The options expiring on November 16 suggests the stock will fall to $149 or lower by expiration. That is because the number of bearish puts at the $155 strike price outweigh the bullish calls by over 10 to 1 with over 23,000 open put contracts.
Weak Technical Chart
The chart shows the stock has fallen below technical support at $159.50 and indicates it may head lower to its next level of technical support at $148.75. The stock attempted to turn its way higher at the end of September but failed, resulting in the most recent declines. (For more, see also: Facebook Seen Rising 9% Short Term As Profits Fall.)
Weak Quarter Ahead
Analysts are reducing their estimates for the company and now expect third-quarter results to fall by over 5.5% versus the same period a year ago. The full-year forecasts are falling too, for example, since September analysts have reduced their earnings estimates for 2018 by $0.02 per share to $0.30. The bigger problem is that estimates are down even more since July.
For Facebook’s stock to turn the corner and rise again the company will need to deliver better than expected third-quarter results and guidance later this month. This puts a lot of pressure on the stock as investors grow increasingly negative.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.