Shares of Facebook (FB - Free Report) surged over 8% Wednesday after Citron Research and Andrew Left raised their price target for the embattled social media powerhouse, citing Facebook's long-term appeal. So the question is should investors buy Facebook stock on the dip as we inch closer to 2019?
Well-known short seller Andrew Left of Citron thinks that Facebook stock could reach $160 per share in 2019. The firm pointed out that the company’s user data and privacy scandals have had little impact on Facebook’s user base and revenues.
Citron and Left dove into just how impressive Facebook’s user base is, which should help it continue to attract advertisers as non-ad supported platforms such as Netflix (NFLX - Free Report) and Amazon Prime (AMZN - Free Report) attract more and more customers. Plus, the firm presented its case as to why Facebook is hardly “evil” compared to many other firms in a report titled “Citron Research Backing Up the Sleigh on Facebook.”
“Books have been written and movies have been made on the Facebook is evil topic, but never before has Facebook been this compelling of an investment opportunity,” Citron wrote.
“As investors have become overly concerned about the short-term noise of privacy and propaganda, they have forgotten to look at the earnings power and potential of the most advanced advertising tool with global reach in messaging, networking, and the future of shopping. The Facebook platform has advanced a long way and has turned this research firm from a one-time skeptic to a major bull.”
Shares of Facebook climbed over 8% to reach $134.18 per share Wednesday after investors reacted positively to Citron calling the social media giant its “2019 S&P Stock of the Year.” Despite Wednesday’s climb, FB stock would have room for roughly 20% growth before it hit Citron’s 2019 target.
Furthermore, Facebook stock is still down around 40% from its 52-week high of $218.62. We should also note that other beaten-down giants, including Apple (AAPL - Free Report) and Google (GOOGL - Free Report) , surged as the market tried to rebound from its historically bad December.
Facebook CEO Mark Zuckerberg and other top executives have come under fire over the last year for the company’s handling of user information. Facebook has already been fined the maximum legal amount by the UK privacy watchdog and testified in front of members of Congress. Meanwhile, fellow social media firm Twitter (TWTR - Free Report) has faced similar scrutiny over its role in the spread of misinformation.
With that said, Facebook could eventually become less of a target as more people understand that what the firm has done with user data isn’t necessarily unique. Going forward, other firms and whole industries could draw attention for their use of user data in a digitized world.
Plus, Facebook has already announced it plans to spend billions of dollars in order to curb user data and “fake news” problems. This will impact the company’s operating margin that is expected slip into the "mid-30s on a percentage basis" over a more than two-year period. But the spending could end up helping Facebook in the long run.
Still, Facebook reaches more than 2.6 billion people across its platforms, and Instagram has become even more popular with users and advertisers. Plus, Facebook plans to jump further into live streaming video and virtual reality. On top of that, FB stock is trading near its all-time low forward P/E at 16.8X. Facebook has traded as high as 90X over the last five years and 31.5X in the last 12 months, which means it is not too much of a stretch to say FB stock appears “cheap.”
Looking ahead, our current Zacks Consensus Estimate calls for Facebook’s Q4 revenues to surge 26.4% to hit $16.4 billion—Q3 revenues jumped 33%. Meanwhile, the firm’s fiscal 2018 revenues are projected to surge 36.1%. Jumping ahead to 2019, Facebook’s revenues are expected to climb nearly 24% above our 2018 projection to reach $68.51 billion.
Moving onto the bottom of the income statement, FB’s adjusted Q4 earnings are expected to dip slightly from the year-ago quarter. FB’s fiscal 2018 earnings are, however, still projected to surge 19.6%. We should also note that Facebook’s fiscal 2019 earnings are projected to slip 0.17% below our 2018 estimate.
With all that said, it seems like Facebook stock could be one to consider heading into 2019 because of its current valuation picture, discount compared to where it has traded in the relatively recent past, and much more.
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