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Facebook Stock: Still Attractive after Whistleblower Testimony?
Stock Analysis & Ideas

Facebook Stock: Still Attractive after Whistleblower Testimony?

Facebook (FB) continues to make headlines for all the wrong reasons.

Many bears on Wall Street have touted “this time is different” for the controversial social-media behemoth that’s attempting to bounce back from its one-two punch of whistleblower Frances Haugen’s bombshell interview on 60 Minutes, and one of Facebook’s worst outages in over a decade.

The backlash facing Facebook is nearing its boiling point. This isn’t the first time that the has company faced such profound pressure across the board, though. Back in 2018, FB stock plunged over 40%. Undoubtedly, a broader market sell-off severely exacerbated the decline. Eventually, FB stock bottomed out and moved on.

This time, I believe, will be the same story, leaving me bullish on the stock. Even with Apple (AAPL) also delivering a jab to the company’s ad business with its privacy-focused iOS 15 update.

Earnings don’t lie, however. Even if Facebook’s remarkable operating margins are poised to take a single-digit hit, Mark Zuckerberg is more than likely to find his way out of the latest debacle, without or without another round of grilling from congress. (See Analysts’ Top Stocks on TipRanks)

Perfect Storm

The stage may very well be set for another 2018-style implosion in FB stock. Like in the back half of 2018, the broader markets may make a move into correction territory, as the FAANG trade shows some dents in its armor.

Broader weakness in the FAANG trade could very well drag Facebook stock towards the $250 range. Will it deserve it? Probably not. Still, just about everybody hates the business these days.

As the company manages through this latest nightmare, though, the anger towards the company is likely to blow over, and earnings are more than likely to dictate the stock’s direction once again.

FB stock may very well divorce FAANG, as the trade looks to heat up again. A 20% drop seems highly likely. That said, Facebook is already well past the halfway point to a bear market, currently off nearly 14% from its high. And the valuation is just too good to pass up for those willing to look beyond the next several months.

Cheapest FAANG Stock Could Get Cheaper

FB stock trades at 24.7 times trailing earnings. That’s cheap for a company that’s averaged over 22% in bottom-line growth over the past three years.

The economy is poised to reopen though, and the landscape may be less favorable to the social-media powerhouse over the next 18 months.

Combined with the potential top-line and margin hit from Apple’s privacy-focused update, and it’s clear that Facebook’s next three years could be far choppier than the past three years. Just how choppy?

Facebook already intends to underreport ads by 15% in response to the recent iOS update. The actual number may be higher, so there’s a layer of uncertainty on top of the iOS impact. Add in the potential for anti-trust suits and congressional action in response to the whistleblower’s testimony, and the true extent of the risks are arguably higher than back in 2018.

Still, any congressional action is unlikely to strike overnight. As such, a bear-case scenario with Facebook seems doubtful.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, FB stock comes in as a Strong Buy. Out of 31 analyst ratings, there are 25 Buy recommendations, five Hold recommendations and one Sell recommendation.

The average Facebook price target is $419.87. Analyst price targets range from a low of $300 per share, to a high of $500 per share.

Bottom Line

It’s easy to hate FB stock, as many on the Street turn against it. That doesn’t make them right.

FB is the cheapest FAANG stock, and investors may be underestimating the company’s ability to change for the better.

Disclosure: Joey Frenette owned shares of Apple at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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