Facebook Enters Correction; Stock Looks Cheap © Reuters. Facebook Enters Correction; Stock Looks Cheap
Facebook (NASDAQ:FB) just nosedived 4% on Wednesday, bringing shares of the social-media giant into correction territory. Indeed, it’s been a volatile ride for shareholders of FB over the past year. Wednesday’s selling pressure came courtesy of Facebook’s warning that Apple’s (NASDAQ:AAPL) privacy update would negatively impact ad growth.
Undoubtedly, many Apple users are more inclined to opt-out of ad-tracking when given the option. While part of the impact of the iOS update was likely already baked into FB stock, the magnitude of the impact may have been discounted by investors. Despite this, I am bullish on the name and think it’s one of the cheaper FAANG stocks out there, following its latest tumble.
At this juncture, Facebook seems inclined to play it conservatively, with plans to underreport its ads business by around 15%. Still, management did note that the range had the potential to be broad, injecting a bit of uncertainty into the possible impact of Apple’s update. As you may know, there are few things investors dislike more than uncertainty, hence the immensely negative reaction in the stock. (See Facebook stock charts on TipRanks)
Facebook’s Brutal Wave of Bad News
With Facebook’s Chief Technology Officer (CTO) announcing his intention to step down in 2022, the stage looks to be set for another Facebook pullback, which could stretch beyond just a correction.
Add the recent Wall Street Journal report that shed light on Instagram’s potential mental health impacts on teenage girls into the equation, and it’s really tough to get behind FB stock here. Indeed, a worsening of this sell-off seems more than likely, especially with all the broader market correction calls made by strategists these days.
Despite the negative headlines, I think the longer-term fundamentals are still intact for FB stock. Indeed, there’s a lot to hate about Facebook right now, and it’s easy to turn against the stock at this crossroads. Still, there’s no denying its robust fundamentals and very reasonable valuation. Stepping in as a contrarian after a 10% pullback could prove to be a wise move for long-term investors with a tolerance for pain.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, FB stock comes in as a Strong Buy. Out of 30 analyst ratings, there are 25 unanimous Buy recommendations.
As for price targets, the average Facebook price target is $421.97, implying an upside of 23%. Analyst price targets range from a low of $300.00 per share to a high of $500.00 per share.
The Bottom Line on FB Stock
Facebook was already one of the cheapest FAANG stocks before Wednesday’s plunge.
Now, it’s even cheaper in a market that’s still arguably frothy. Should selling pressure mount further, it’ll be tough for the value-conscious to stay on the sidelines, even though uncertainties are now arguably at a high point.
Facebook will likely pull out all the stops to improve its reputation and move on to a more challenging era where competition for targeted ads could heat up, potentially driving prices. If there’s a company that can adapt and rise to the challenge, it’s Facebook. As such, investors would be wise not to bet against the name, as Facebook looks to push through setbacks to continued growth.
Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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