There’s no denying it. Facebook Inc (FB) stock has been one of the best investments anyone could have made since its early 2012 IPO … and that’s factoring in the post-IPO stumble that stemmed from the then-controversial (though now largely forgotten) possibility that the company overstated its growth potential.
Facebook stock is currently up 550% from its late-2012 lows, but is also up a healthy 200% from its IPO price of $38 per share. There’s not a lot complain about no matter where you got in.
However, the $64,000 question is, can the Facebook stock price continue to climb at its impressive pace, and if so, how long?
Answers (in order): Yes, and longer than you might think.
A Bullish Undertow for Facebook Stock
While this is mostly going to be a technical look at FB, not even a mostly-technical look at Facebook stock is complete without the context of the company’s amazing growth that has silenced even the most persistent critics.
[ad#Google Adsense 336×280-IA]Although the company’s fiscal results don’t prevent the usual choppiness all high-profile stocks tend to dole out, the longer-term uptrend is merely a reflection of — and will continue to be a reflection of — the company’s corporate numbers.
Just to paint the picture in finer detail, Facebook has beefed up its top line from $3.7 billion in 2012 to $17.9 billion last year.
Analysts expect to see similar growth going forward, with annual revenue reaching $52.4 billion in 2019.
Per-share profits for FB rolled in at 53 cents in 2012, but reached $2.28 last year. Those same pros expect to see earnings of $7.08 per share of Facebook stock in 2019.
That’s a lot of growth, but it’s not an over-the-top outlook. Even with as much growth as Facebook has mustered thus far, the fact of the matter is, most people on the planet are not yet Facebook members. Only 1.59 billion individuals were regular users as of the end of 2015, versus a global population of 7.4 billion. Never even mind the fact that Facebook arguably knows how to monetize its users better than any other membership-oriented web-based company.
In other words, there’s no reason to think the bigger-picture bullish undertow for Facebook stock won’t be around for a long while.
Buy FB on the Dips
In light of the ascending top and bottom lines (past and future), it’s not hard to plot the bullish trend lines that have guided Facebook stock higher since late-2013. There are a few of them, actually, all plotted as dashed lines on the chart below.
The real hero since the middle of 2013, however, has been the 200-day moving average line (green). Once FB cleared it in the first half of that year, that long-term moving average line has rekindled the long-term rally every time it was tested as a floor. In fact, the 200-day average line is the key reason the current intermediate-term rally is underway. There’s some room to keep rising before either of the upper trend lines are met.
At this moment in time, while the short-term momentum is bullish — with plenty of room to keep rising before a ceiling is hit — it’s a flawed bullishness that merits at least a little short-term concern.
The flaw?
A simple lack of volume behind the most recent part of the advance — if the rally is going to last, it needs more participants than this.
It’s not a terribly surprising outcome. Since early last year, Facebook stock has been bouncing around between two diverging support and resistance lines (not exactly the same guidelines plotted on the weekly chart above). That was fine, for a while, but now those lines are too far apart to feasibly allow for full, easy, uninterrupted travel between them.
Either the bulls will need to take a break and regroup and then finish the journey to the upper edge of the diverging wedge pattern. Or, a wave of buyers is going to have to step up to the plate … soon. The more likely response is a break or lull for the current rally and then a resumption of the longer-term uptrend. The ideal landing spot for such a lull is the $106 area, where the 50-day and 100-day moving average lines recently converged.
Bottom Line for Facebook Stock
Whatever is in the near-term cards, both charts above ultimately say the same thing — FB has a bullish future, even if it doesn’t merit new entries right this very second.
Impatient investors may want to wait and see if they can get in around $106. Patient investors, on the other hand, may want to hold out for the point where the Facebook stock price revisits the 200-day moving average line, wherever that may be in the future. Just bear in mind that could be a long wait, perhaps leaving some gains on the table in the meantime.
— James Brumley
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Source: Investor Place