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I love facebook, I think it had all the potential of being a monster stock. Unfortunately, Zuckerberg and company were able to wait long enough, (8 years) and then to issue enough shares (2.14 Billion) at a high enough price  ($38) to leave no money on the table for retail investors. Traditionally a growth company will go public during its peak growth stage at a small capitalization then the stock will increase as the earnings expectations increase and the company grows allowing the stock price to grow with it. With facebook going public with a market capitalization of $115 billion as it began to trade at $42 a share most of the expected growth and value was already baked in, the early investors were taking their huge parabolic profit off the table after one of the biggest  money making investment runs in history while retail investors were piling in at $45 a share after waiting years to just get a piece of the facebook action.

  1. With 30%-40% earnings growth estimates this will not be enough to expand the P/E ratio to create an up trend. (89 P/E)

  2. Deputing at the beginning of what could be a nasty bear market with Europe on the edge of fiscal collapse.

  3. Facebook is a big cap company that will likely stay range bound like Google has since 2007 due to the best growth years being behind it.

  4. The stock price can’t double from the IPO price without facebook having a market cap of $180 billion.  That would put facebook among the top 10 most valuable companies in the United States with only $1 billion in earnings a year. this is virtually impossible.

  5. Currently the odds are on facebook having a 50% down side not a 100% up side.

  6. The chart has never been above the 5 day ema since the 5 day existed. This is my #1 trend indicator.

  7. There are very good odds that everyone that wanted to own facebook already owns it due to its popularity and media attention.

  8. There is a long line of facebook stockholders waiting to sell the stock to get out even all the way up to $45 a share. This is called overhead selling pressure.

  9. The facebook bull market run never took off, it was a disaster even before it started trading. That is THE trend.

  10. The proper buy point for this stock is either at a break above the 5 day ema at a close above or deep in the future as it breaks above the 50 day sma or bounces off the 200 day sma. Unfortunately this may be in the single digits.

This may be the monster stock that never was. I was very bullish on facebook as a stock, that is why I trade the charts and not my personal opinions. Charts don’t lie.

I never bought any facebook stock after seeing the gap up and collapse back to the IPO price on day 1. I have been playing the short side of facebook with puts since they have been available and will continue to be short facebook below the 5 day ema with stops in place if it reverses on me. The best place to short is as near as you can get to the 5 day ema using put options since the stock is hard to find and borrow with many brokers. I truly believe that this stock has a potential down side of up to 50% from the IPO price with just a little bad news or slower than expected earnings growth. I have not traded this aggressively with position sizing since I was long Apple in the first quarter.  As always I can’t predict I have to let the charts and my stop losses decide if I win or lose.

 

chart of the day, facebook stock vs apple and google, may 2012chart of the day, facebook revenue growth ahead of ipo, april 2012facebook google yahoo revenue