Analyst Says Facebook Stock Is Cheap Even After Earnings Rally

On the other hand, short interest has been rising in 2018

Apr 27, 2018 at 9:52 AM
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Facebook Inc (NASDAQ:FB) helped boost the broader stock market yesterday with its impressive earnings report. Shares of the social media company ended Thursday's session up more than 9% -- part of a month-long recovery since the Cambridge Analytica fallout -- and they're trading higher again today, as a number of market watchers are suggesting the equity's valuation remains too low.

Specifically, CNBC's Jim Cramer yesterday said Facebook could be the cheapest stock in the S&P 500 Index (SPX), explaining that blue chip Coca-Cola (KO) trades at the same price-to-earnings (p/e) multiple as the tech giant, despite Facebook's huge revenue growth. This sentiment was echoed by an analyst at Stifel this morning, who upgraded FB to "buy" from "hold" and raised their price target to $202 from $175, saying the security was "too cheap to ignore."

For what it's worth, Cramer was likely citing Facebook's forward-looking p/e ratio. But if we look at the trailing 12-month p/e ratio, FB's stood at 28.27 at yesterday's close, while KO's was actually in the mid-30s. Interestingly, this valuation measure has been steadily declining since January 2016. FB was last quoted at $176.69, up 1.5% for the day, putting it back above the 80-day moving average for the first time since before the data drama began in mid-March. As you can see on the chart below, this trendline offered nice support for the shares from June through January.

facebook stock price

This rebound in Facebook's stock price is bad news for short sellers, who've taken a newfound interest in the tech name in recent months -- a group that includes hedge fund giant Jeffrey Gundlach, who earlier this week recommended shorting the stock. By the numbers, short interest on FB has increased 45% in 2018, including a 19.3% jump over the past two reporting periods alone. Still, less than 2% of the total float is controlled by short sellers at the moment.


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