Why Facebook (FB) Stock Is Lower Today

NEW YORK (TheStreet) -- Shares of Facebook Inc. (FB) are down by -1.42% to $74.89 as the social media company continues to decline following this morning's ratings downgrade to "neutral" from "buy" at Janney Capital Markets.

The firm lowered its rating on Facebook due to its concerns the company's growth will begin to decelerate, raising valuation worries through 2015.

Janney set a $75.96 price target on Facebook's stock.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Expectations for Facebook's performance are "too high," and could weigh on the company's valuation if "natural deceleration" in top-line growth, engagement, and monthly active users occurs in 2015, MarketWatch reports.

Facebook's shares have grown almost 37% year-to-date, but confidence in the stock is lessening, as shares of Facebook experienced a one-day 1% drop following its announcement it beat earnings estimates for the 2014 first quarter, compared to a 30% one-day rally in 2013 after announcing its second quarter earnings beat, MarketWatch noted.

Separately, 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 stock itself is trading at a premium valuation."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FB's very impressive revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues leaped by 60.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FB's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 12.48, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $1,341.00 million or 1.43% when compared to the same quarter last year. Despite an increase in cash flow, FACEBOOK INC's cash flow growth rate is still lower than the industry average growth rate of 17.71%.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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

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