Facebook Inc. (FB) has fallen out of favor with many investors in recent months as the shares fell more than 25% from their record high back in July. But Facebook has the potential to rise sharply even as analysts slash their price targets. Argus Research’s Joseph Bonner, for one, thinks the sell-off has been overdone and sees it as an attractive buying opportunity. Bonner's $210 target for Facebook was lowered from $237 previously, but it still amounts to a 33% gain in the stock, according to Barron’s. Bonner's forecast is in line with the average price target for the social media giant.
Facebook: Big Upside
|Stock||Price||Argus Price Target||Upside|
Source: Barron’s, Yahoo! Finance, 4pm EST 10/8
Significance for Investors
"Facebook is having a tough year," says Bonner, per Barron's, adding that the social network giant's platforms "provide digital advertisers with unique access to a huge base of users. The haircut for Facebook's shares has been positive for valuation." The stock has fallen in response to fallout from the Russian troll operation during the 2016 presidential election, the Cambridge Analytica scandal, the exit of Instagram's co-founders, and a recent report of a security breach affecting 50 million accounts - all of this is creating investor concerns about the company’s growth. Comparing Facebook’s stock performance this year with other big tech companies confirms investors' fears, as you can see by the chart below. (To read more, see: Facebook Could Be Fined $1.6 Billion in Europe Over Data Breach).
Facebook Lags FAANGs and S&P 500
|Google (Alphabet)||+ 9.8%|
|S&P 500||+ 7.9%|
Source: Dow Jones; 4PM EST 10/8
But Bonner says the fears are overdone. Regarding the recent security breach, he notes that the 50 million accounts said to be affected represent just a small percentage of Facebook’s total user base. In addition, the company’s response may be strong enough to avoid any major regulatory fines, according to Barron’s. Facebook has shown resilience in responding to regulators regarding other scandals concerning user privacy and so-called “fake news” on the network.
Bonner concludes that the stock is trading at a bargain price. He says Facebook is trading at a 40% discount to a peer group of large internet and tech stocks, using a common valuation metric of enterprise value (EV) to forward earnings before interest, taxes, depreciation and amortization (EBITDA), Over the past two years, that discount has been, on average, just 8%. (To read more, see: Facebook Has Best Risk/Reward Out of the FAANGs: Mark Mahaney).
While the bears argue that Facebook is beginning to peak and will see slower user growth, the company remains a dominant social-media platform with around 1.5 billion daily users and faces no major competition. It also has room to expand in the global advertising market and has yet to leverage ads on two of its major platforms, Facebook Messenger and WhatsApp. To the bulls, that offers plenty of upside for the stock.