The observation was made after looking at a two-year chart for Facebook Inc (NASDAQ:FB) in which the company’s stock price is shown to have steadily climbed within the period. Aside from tracking trend “pretty well,” as the CNBC panel says, the stock is also shown to have had a “flat top” with an instance of breaking out hitting $86 per share before falling below again.
According to the discussion, Facebook Inc (NASDAQ:FB) is likely to come out again, this time to a new high, after it comes out of the trough at $86 to $80 per share it is in.
The stock’s relative strength is “quite good,” according to the CNBC contributors.
Mike Khouw adds that fundamentally, Facebook is an expensive stock. It is at about 80 time earnings, he says, and in a trailing basis, probably about 40 times estimated earnings.
However, the CNBC contributor says that what is interesting in Facebook Inc (NASDAQ:FB)’s valuation is that we do not see a multiple expansion unlike what can be seen “in almost any other part of the market”.
“This is an interesting situation,” Khouw says, “because if you take a look at a chart of the stock as we just did since the IPO and then you map the revenues over it, revenues have actually outpaced the stock price growth over the course of the last couple of months. So, I’m not going to call the stock cheap but after I saw the reaction to Netflix this week – and I can actually say Facebook has not seen multiple expansion which is my primary concern with the rest of the marketplace – I actually could see some upside here.”
As for plays on options, Khouw recommends paying a bit more for month-long calls as the stock usually moves an average of 15% in either way a month after its earnings report compared to a little less than 9% and 10% the day after and the week after its earnings report respectively.
Karthik Sarma’s SRS Investment Management owned 5 million Facebook Inc (NASDAQ:FB) shares by the end of 2014.
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