Shares of Facebook (FB - Free Report) rebounded about 0.5% on Monday, but the recently-embattled stock is still down more than 14% over the past month as investors punish the social media company for its role in a data scandal that has raised serious questions about the safety of user information and personal privacy on the internet.
Facebook shares have been hammered after several media reports exposed an incident that gave Cambridge Analytica—a political consulting firm with ties to Robert Mercer, Steve Bannon, and President Trump—inappropriate access data on up to 87 million Facebook users.
Exactly what type of regulatory pressure Facebook will feel from the scandal will become more apparent after Mark Zuckerberg testifies in front of Congress on Tuesday, and investors got their first taste of what the CEO would say with the release of his prepared remarks today.
“It's clear now that we didn't do enough to prevent these tools from being used for harm as well. That goes for fake news, foreign interference in elections, and hate speech, as well as developers and data privacy,” Zuckerberg wrote in the remarks. “We didn't take a broad enough view of our responsibility, and that was a big mistake. It was my mistake, and I'm sorry. I started Facebook, I run it, and I'm responsible for what happens here.”
Facebook has also reminded investors that it plans to increase its headcount to tackle data security issues, although Zuckerberg did recently mention that it would take three years for his company to fix the problems it is currently having.
Meanwhile, Facebook said it will both support the Honest Ads Act—a proposed rule change that would apply the same regulations to ads on social media as currently apply to TV, print, and radio—and reduce the information it shares with data brokers.
But with all sorts of uncertainty still looming, Facebook feels risky for the time being. Has the stock’s recent selloff sent its valuation into a value territory that would outweigh this risk? Let’s take a closer look.
Facebook is currently trading with the lowest forward 12-month earnings multiple it has ever seen. It is also presenting a noticeable discount compared to its peer group, which includes internet giants like Alphabet (GOOGL - Free Report) , Baidu (BIDU - Free Report) , and Liberty Expedia Holdings .
Others in the internet space, especially Alphabet, will face the same regulatory scrutiny that threatens Facebook as data privacy comes to the forefront of our national attention. But that spotlight is firmly planted on Facebook right now, and although the stock is trading at a discount, investors must seriously consider whether that sale price is worth the risk.
Facebook was poised to be one of 2018’s strongest tech stocks, with analyst sentiment remaining remarkably sound until just a few weeks ago. In fact, FB spent has spent a combined 13 weeks as either a Zacks Rank #1 (Strong Buy) or #2 (Buy) already this year.
However, that snapshot has changed in recent weeks. In just the past seven days, the company has witnessed two downward revisions to its current-year EPS estimates and fiscal 2019 EPS estimates. That negative revision activity has dragged the stock down to a Zacks Rank #3 (Hold).
While the proven Zacks Rank system is not screaming for investors to ditch the stock just yet, investors with any sense that we have just scratched the surface of this data privacy issue might see this recent activity has confirmation to avoid Facebook for now.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>