To be honest, I have not been a big fan of this stock lately. In June 2020, I used a simple graph to illustrate how the Menlo Park-based company had likely peaked, both from a business fundamentals and stock perspectives.
Maybe a coincidence, shares reached a top of over $300 apiece only two months later, and never saw all-time highs again. Nearly half a year later, the stock is still 13% in the hole.
Now, let’s see what Facebook experts have been saying about the investment opportunity here. Below is a snapshot, followed by a deeper dive into the bull and bear cases on the social media stock.
The table below shows that Wall Street analysts do not share my skepticism whatsoever.
Of the 33 analysts tracked by Stock Rover, 30 rate Facebook a “strong buy”. Even better, consensus price target of roughly $328 per share points at upside potential of nearly 24% – a better opportunity than what Apple and Microsoft could provide, according to Wall Street.
What Facebook bulls say
The bull case on Facebook tends to follow one common theme: growth at a reasonable price, what some refer to by the acronym “GARP”.
Jefferies analyst Brent Hill seems to like everything: the ad industry in general, Facebook specifically and valuations. He is “increasingly positive on the digital ad industry amid the recent pullback in the group, [and notes] that digital ad players should benefit from a further return of ad spending in 2021”.
The analyst’s argument in favor of Facebook goes further. Brent sees the stock trading at a 40% discount to the Nasdaq, which seems inconsistent with Facebook’s revenue growth that he estimates will accelerate from 22% last year to 26% in 2021.
Alan Gould, from Loop Capital, hits on some of the same points. He believes “that the strong momentum across digital advertising platforms should continue into the New Year”. The analyst increased his price target to $370 recently, thinking that Facebook’s earnings deserve a higher valuation multiple – although he did so in February, before the tech space fell victim to a recent selloff.
Lastly, Alan squashes one argument that is often used by Facebook bears. In his opinion, a Big Tech “witch hunt” (read: governments’ antitrust actions) that leads to the social media company breaking up would be accretive to shareholders. In other words, the analyst thinks that the individual parts (Facebook proper, Instagram, WhatsApp, and Messenger) could be worth more than the conglomerate.
The flip side of the argument
While not a single analyst currently thinks that Facebook is a stock to sell, Needham’s Lauren Martin is among the most cautious experts out there. She, alongside one of her sell-side peers, has a “hold” rating on the shares.
Lauren makes a good point about the Facebook vs. Apple battle over the Cupertino company’s new data privacy rules. As a refresher, Apple will start giving iOS users the option to share (or not) their personal information to the likes of Facebook to be used in personalized ads.
What the analyst says sounds more like a warning than a firm bearish case – but one that I believe Facebook investors should pay attention to: “as soon as iPhone owners can opt out of advertising via the new iOS 14 permissions, they will”.
I would add one last bearish argument to the mix. Facebook is at the center of heated debates over user data privacy and the spread of malicious content. In addition to reputation risk, the company is faced with increased costs needed to deal with the issues, which I think can be a problem for the bottom line.
I asked readers the question: would you invest in Facebook stock at current levels? Here are their responses.
Explore more data and graphs
The table used in this report were provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.
To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that I have will give you access to all the information that went into my analysis and much more.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)