Does Battered Stock Price make Facebook (FB) a Screaming Value Buy?

Facebook stock has been a real heart breaker for investors who got stuck at the IPO price. Since its listing the stock has seen a relentless fall and is now trading around $ 20 mark. Well, it was always seen as an expensive offering but now the prices have almost halved from the levels it traded on the listing day. The damage has been done, and now the value hunters are calling it as an opportune time to accumulate this stock. Most analysts suggest that there is nothing wrong with the business; it was purely a valuation call that the stock took such a beating.

Even from the short term trading point of view, the stock looks oversold. It’s difficult to put a bottom to this fall, but it genuinely makes sense to accumulate this stock on dips and hold it for 2-3 years. Recently, Morgan Stanly set a $38 one year target on the stock price, and similarly more bullish voices are echoing for the stock. The buy ratings from analysts are building up on the stock, and now it seems that we are somewhere near to the floor as far as the stock price matters.

If we look at the one year price targets from renowned names, Facebook stock is expected to trade anywhere between $32 and $42 by the second half of 2013. Anyhow, there is no point reading into these targets too much as we can always challenge the intent behind them. But at current prices, the stock looks extremely cheap and value buying can suddenly creep in.

Technical Stock Analysis FB

The stock needs to fill the gap area between $24 and $28 to confirm that a bottom is in place. For now, it looks difficult for the stock to make a 50 DMA and 200 DMA crossover on the upside, but let’s not forget it’s just been 3 months of trading and even now, sudden moves can dramatically turn the moving averages. Once the gap area is filled, the stock will face substantial resistance around the $32 mark. It might take months of consolidation before the stock can attempt to rise higher than its IPO price.

Oversold Stock: Will One Billion Users make it Attractive?

Technically, the stock is oversold and investors have paid no respect to the fundamentals of the company. All this makes a perfect scenario for value investors to take advantage of the sharp price depreciation. However, in current market environment, there are a whole host of businesses that are available at battered valuations and many of them pay attractive dividends as well. Despite that, Facebook is an attractive play as its user base is expected to cross one billion in 2012 itself. For now, the key source of revenue is advertizing and that too looks challenging on the mobile side of the business. No doubt, the user base is growing pretty fast and that will continue to remain a key reason to buy this business, Facebook still needs to quickly figure out new ways to monetize on these users.

The key concern for most analysts remains the mobile advertising side of the business, which is still in its infancy. It’s not just Facebook’s problem, every other player is facing similar challenges on how to get mobile users to click on ads. On the bright side, a growing number of websites are using Facebook technology to authenticate users and gain social interaction.

Conclusion

At current valuations, investors are puzzled if Facebook is a safe story to ride for the long term. The problem is that the analyst community has completely failed to understand the potential of the business and that is keeping investors miles away from a possible multi-bagger story.

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