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Shares of Facebook (NASDAQ: FB ) haven't been able to sidestep the selling pressure over the past few weeks. Shares have pulled back, with FB stock falling from roughly $200 down to $180. However, the pullback has been very orderly so far and is even finding some moving average support.
Is this investors' chance to hop on the Facebook train or should they stay clear in the event of more selling?
With the trade war hitting U.S. stocks, virtually all industries are under pressure, even though not all of them are impacted by the trade war. For instance, cloud companies like Adobe (NASDAQ: ADBE ) or Salesforce (NYSE: CRM ) won't see their businesses impacted by the trade war. Nor will Twilio (NYSE: TWLO ) or Splunk (NASDAQ: SPLK ). Worth mentioning is that Facebook isn't allowed in China, although its WeChat has plenty of global exposure.
My point is, even though some of the companies above aren't impacted by the trade war, their stocks are still under pressure. FB stock is no exception either. Maybe the indices have already bottomed from these headlines, but it doesn't feel like it. If we have one or two more down legs to do go, investors will get a better shot at Facebook stock. That said, traders have a reasonable risk/reward situation with FB right now, should the markets hold up.
Trading FB Stock
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So far, uptrend support (blue line) and the 50-day moving average are holding up for FB stock. That's a perfect spot for traders to watch, too. A pullback in a strong stock to its 50-day usually draws in buyers, even if only for the short-term. Facebook at least has that going for it right now.
The key is to see what kind of bounce we get. Is it a modest 1% to 2% rally or does it send FB stock back to recent highs near $195? If it clears $195, $200 is on deck. Over the 61.8% Fibonacci retracement at $182.10 increases the odds for a retest of the 20-day moving average and gives some momentum to bulls.
Should the selling accelerate in the overall market and FB stock gets pulled down, there are levels of support below too. A price of $170.82 marks a 50% retracement and down near $159.50 is the 38.2% retracement. The latter comes into play near the 200-day moving average and is a key level of support. Conveniently, $170 could be decent support too, it just depends on the aggressiveness of sellers should we get a pullback down to these levels.
We may not see that type of decline, but if we do, it will pay to know where FB stock can hold up.
Valuing Facebook Stock
It was like the sky was falling with Facebook stock over the past year, as investors were dumping the social media giant hand over fist. That's despite it having the best financials and metrics compared to peers like Twitter (NYSE: TWTR ) and Snap (NYSE: SNAP ).
Privacy concerns and worries about leadership caused investors to puke up the stock. Never mind that FB stock has one of the strongest balance sheets in the stock market and is a cash-flow machine.
Analysts expect the company to earn $7.05 per share this year. That's down almost 7% from the prior year. The plus side is that they expect 32% earnings growth to $9.32 per share in fiscal 2020. On the revenue front, growth is doing anything but slowing. Estimates call for 24% growth this year and 21% next year.
Social media is far too efficient for businesses to ignore when it comes to advertising and it's far too addicting for users to put down. So long as that remains the case, Facebook will be in business. That bodes well for long-term investors , particularly given the balance sheet strength of FB stock.
Long-term investors may consider waiting for a larger correction in FB stock should they want to bet on the continued growth in social media. Otherwise they could consider a nibble of Facebook near current levels.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
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