NEW YORK (TheStreet) -- Facebook (FB) shares shed 4.9% to $48.04 as of 11:30 a.m. New York time following a sharply weaker Nasdaq and a downgrade. The stock plummeted as low as $47.91 at 11:08 a.m. before recovering slightly.
Financial services company Raymond James downgraded its Facebook rating to "buy" from "strong buy," citing analyst Aaron Kessler who said that while he retains his bullish stance, Facebook's high valuation called for a downgrade. Kessler revised his price target to $56 from $38.
TheStreet Ratings team rates Facebook Inc as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FB's very impressive revenue growth greatly exceeded the industry average of 22.7%. Since the same quarter one year prior, revenues leaped by 53.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Although FB's debt-to-equity ratio of 0.18 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 10.22, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for FACEBOOK INC is currently very high, coming in at 87.04%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 18.36% trails the industry average.
- Powered by its strong earnings growth of 285.71% and other important driving factors, this stock has surged by 125.30% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- When compared to other companies in the Internet Software & Services industry and the overall market, FACEBOOK INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: FB Ratings Report
Written by Keris Alison Lahiff.