A move below the neckline, currently just above $26, is the immediate-term sell signal for this stock. Momentum, measured by 14-day RSI, has been trending lower too, adding some bearish confirmation to this trade. Add in the fact that Facebook has been extremely obedient to technical factors since it started trading, and this becomes price action worth heeding in March.
There's Value -- Somewhere
I don't hate Facebook. In fact, I wish the company well. And investors should be aware that despite the problems with shares today, there's still considerable value in this company. Just not $27 worth.Facebook currently has around 900 million monthly active users (depending on what qualifies a user as "active"), and that certainly has value. Even if it's clear that those users aren't as valuable as users of Google's paid search product, they're still worth a lot. So is the mountain of personal information that Facebook has on each one of them. Targeted marketing data is extremely valuable, and if Facebook can find a better way to walk the line between befriending advertisers and maintaining customers' privacy concerns, there is a huge opportunity. Online gaming through Zynga (ZNGA - Get Report) currently makes up around 15% of Facebook's sales. That revenue stream is exactly the kind of business that FB should be pursuing -- it lines up the firm's sales with what users are actually trying to do on the site. The more money Facebook can earn by helping users get what they want (instead of distracting them), the more valuable each user becomes. Another obvious piece of value is cash. Facebook has almost $10 billion of it, making up around $4 per share of reduced risk. While that certainly helps to trim back the lofty price-to-earnings ratio (a cash-adjusted P/E is a more meaningful measure, anyway), the firm is still trading for a hefty growth premium to where Google was during the same period. The long and short of it is that Facebook needs to pursue new products if it wants to justify the sort of earnings multiple that it's currently trading for. As it stands now, the stock is woefully overvalued. Worse, the technical factors at work in Facebook point to a near-term change in trend to the downside.
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