Facebook Stock Down 9% in September – Time to Buy FB Stock?

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

The price of Facebook has gone down 9% so far in September as a result of a combination of broad-market weakness and negative reports alleging that the company has concealed reports about the negative impact of its app on young individuals.

Moreover, Facebook warned that its advertising platform is currently underreporting some metrics including the number of conversions made by specific ads as a result of changes made by Apple (AAPL) to its iOS operating system that allow users to opt-out of being tracked by some applications.

For Facebook, having access to key data points of its users along with tracking their behavior is part of what makes its marketing platform so effective for businesses. Therefore, a potential flaw in its systems and limitations imposed by OS developers on the degree of access that the firm can have to user data may hurt the performance of the company.

Can this latest downtrend be a buying opportunity or is Facebook poised to experienced a sustained drop amid this latest development? In the following article, I’ll be assessing the current price action and fundamentals of the company to possibly answer those questions.

67% of all retail investor accounts lose money when trading CFDs with this provider.

Facebook Stock – Technical Analysis

facebook stock
Facebook (FB) price chart – 1-day candles with multiple indicators – Source: TradingView

The price of Facebook stock has broken its trend line support this month along with multiple horizontal supports as momentum for the social media giant seems to be turning negative.

Yesterday’s volumes were particularly high with nearly 44 million shares exchanging hands during the session – a figure that exceeded the 10-day average by more than 3 times. Shares dived 4% amid news about the impact of this iOS privacy protection feature and investors seem to have been spooked.

Momentum indicators show the extent of the trend reversal as the Relative Strength Index (RSI) has plunged near oversold levels for the first time since January while the MACD has crossed below the signal line and widened its gap with this marker accompanied by steadily increasing negative histogram readings.

Moving forward, there are still multiple horizontal supports that can act as a back-stop for this pronounced drop in Facebook shares including the $335 and $327 levels along with the stock’s 200-day moving average of $313 per share.

For now, Facebook stock appears to be on full-blown falling knife mode and traders should avoid trying to catch it until the price action builds a solid floor to bounce off.

Facebook Stock – Fundamental Analysis

Facebook’s fundamentals are as good as it gets, at least from a past-looking perspective. Both top and bottom-line results have been growing at an attractive pace in the past few years with revenues landing at $86 billion last year amid a strong pandemic tailwind compared to $27.64 billion the company reported back in 2016.

That said, gross profits have been declining during this same period from around 86% to 80%. This is still an elevated level for any company but the downtrend is worth monitoring.

During that same period, Facebook’s normalized earnings per share have grown from $2.7 on a fully diluted basis to $7.18 per share resulting in a compounded annual growth rate (CAGR) of 27.8%.

Currently, the stock is trading at only 24 times its forecasted adjusted EPS for the next twelve months which means that Facebook stock is displaying a price-to-earnings-to-growth ratio below 1. This ratio indicates that the stock is fundamentally undervalued.

Moreover, Facebook has multiple revenue streams that it hasn’t been able to tap on. One of them is WhatsApp, the popular free messaging app that has over 2 billion monthly active users (MAUs) and that remains a diamond in the rough.

Additionally, Facebook’s CEO, Mark Zuckerberg, has already mentioned the company’s interest in developing a metaverse. For a company with such a huge global user base, the creation of a virtual ecosystem on which users can interact via augmented and virtual reality devices is perhaps the most promising long-term project for Facebook and it could have a dramatic impact on the company’s performance.

Considering Facebook’s robust balance sheet (no debt), strong past top and bottom-line growth, and promising prospects, this current drop appears to be an opportunity to buy a stock that seems heavily undervalued.

Buy FB Stock at eToro with 0% Commission Now!

1
$50
Mobile AppYes
  • Buy over 800 stocks with 0% commission
  • Social trading network
  • Copy over 12 million traders and investors

About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.