(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Facebook Inc. (FB) shares have come on hard times in 2018, rising by roughly 4.7 percent, nearly half of the 10 percent gain enjoyed by the Technology Select Sector SPDR ETF (XLK). Concerns about earnings and subscriber growth have hurt the stock's performance to start the year. But signs are emerging that the tide is turning, and FB stock could rise by about 20 percent when all is said and done.
Analysts have set an average price target of approximately $220 for Facebook, according to YCharts. That would be a rise of about 20 percent from the stock's current price around $185, and for once, the analysts may prove right. An analysis of the options market and the technical charts suggest shares of the social media giant could be set to rise as well. (See also: Target Prices: The Key to Sound Investing.)
Analyst estimates are calling for Facebook's earnings to grow by nearly 17 percent in 2018 to $7.20, and that growth is currently seen accelerating to 22 percent in 2019, with earnings estimates rising to $8.76 per share.
$55.29 billion, and then rising by 27 percent in 2019 to $69.98 billion. The significant growth rates come at a one-year forward earnings multiple of only 21 times. (See also: Walgreens, Facebook, Apple Were Hot Q4 Stock Picks: 13Fs.)
Nearing A Breakout
Meanwhile, shares of Facebook could be on the verge of a technical breakout, should the stock rise above $190. The chart below shows that the stock has been trending higher, and cleared resistance at $184.25, and could now on its way to approximately $190. Should the stock break out, it would likely head to the races toward $200, as momentum traders would probably move into the stock.
Options traders are betting shares rise by expiration on June 15. The $180 strike price long straddle strategy is implying Facebook stock could rise or fall by 11 percent, putting it in a trading range of $164.50 to $205.50. But the number of calls heavily outweigh the puts, by nearly 5 to 1, with roughly 15,000 call contracts of open interest, to only 3,000 put contracts. Some are even betting the shares will rise over $210, with 40,000 call contracts of open interest at the $210 strike price.
There is no doubt that Facebook has the potential to bolster earnings and revenue at very high rates over the next few years. But it seems now that analysts, the options market, and the technical charts suggest the stock may rise appreciably from its current levels.
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.