With shares of Facebook (NASDAQ:FB) trading around $27, is FB an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for a Stock’s Movement

Facebook is a popular worldwide social networking company. The company creates tools and methods for users to connect and engage with each other through the use of their platform on a wide variety of mediums. Facebook is a pioneer and a leader in the social arena and, as the world becomes increasingly more interested in becoming interconnected, they are well positioned to capitalize on this trend.

T = Technicals on the Stock Chart are Mixed

Since its widely sought out IPO in 2012, Facebook has seen quite a bit of volatility. Has this volatility subsided, and is this company finally investable? Let’s take a look at the stock’s price action. First of all, Facebook saw big selling at the IPO price and has yet to hit those levels once again. The stock looks to have found a value range in the $17-$23 per share area and has uptrended higher since then but is pulling back from this year’s highs of about $32 per share. The next significant level of support for Facebook stock seems to be in the $23-$25 range. So, the stock may need a little more time.

How can one more clearly identify a trend? Moving averages. A stock should be trading above its key moving averages. The key simple moving averages are the 50-day, 100-day, and 200-day simple moving averages. A stock trading above its 20-day simple moving average would simply be icing on the cake. How do Facebook’s simple moving averages look? Facebook stock is trading around its moving averages, indicating confusion. The slope of the moving averages helps determine the strength of the trend, and at this point, different moving averages are pointing in different directions… also an indicator of confusion. One thing to note is that Facebook does not have a 200-day simple moving average just yet as it has traded for less than 200 days. So the moving averages are signaling mixed feelings about the stock.

Investor sentiment is also key to the success of a stock. One way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Facebook options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Facebook options is at 38.33 percent today, which coincides with a 33rd percentile over the last 30 trading days and 11th percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying little protection compared to the last 30 and 90 trading days. The implied volatility skew of March and April put and call options is right at the average. Now, what does this mean? As of today, there is an average demand from call buyers or average supply of call sellers, while there is also an average demand by put buyers or average demand by put sellers, all neutral over the next 2 months. Ultimately, investors are leaning neutral on Facebook and buying little protection.

E = Earnings Are Mixed Quarter-Over-Quarter

A company in its growth stages, such as Facebook, should be displaying increasing earnings and sales growth. These numbers are the primary catalyst behind their stock price. More importantly, meeting or exceeding expectations, or how the street feels about the numbers is the key factor. Since the company has just recently had its IPO, it does not have many quarters to draw information from. However, the 3 reported quarters have seen negative earnings growth yoy. What does the revenue growth tell us? The last 3 quarters have seen revenue growth yoy of 40.14 percent, 32.29 percent, and 32.29 percent, respectively. So, it is obvious that investors are focusing most of their attention on the revenue growth.

More importantly, were the street’s expectations met? Let’s take a look at the last few earnings reports reactions. The last 3 quarters have seen next day trading session returns of -0.83 percent, 19.12 percent, and -11.69 percent. So, investors have been mixed about the last 3 quarters. There is still some confusion about revenue and earnings growth rates in Facebook stock.

E = Poor Relative Performance Versus Peers and Sector

The social media space is relatively new, so there are not many direct competitors yet. Facebook stock has not performed too well year-to-date, as it showcases a return of -2.64 percent. Its closest competitors, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), SINA Corporation (NASDAQ:SINA) and industry, are posting returns of 9.33 percent, -0.83 percent, -0.04 percent, and 6.03 percent, respectively. Facebook is at the bottom of the pack in this one.


Facebook stock is in a relatively new industry, and if they can learn to properly capitalize on this, they will be an unstoppable company. However, technical analysis on this stock is showing mixed opinions. As of now, Facebook stock looks to be a short-term trading vehicle. Earnings and revenue growth rates have had mixed reactions quarter over quarter, so there is no clear indication of the earning power just yet. Relative to its peers and industry, Facebook has performed poorly year-to-date. So, WAIT AND SEE what Facebook does to perform its earnings and in turn its stock price.

Copyright Wall St. Cheat Street. All rights reserved.