It will be entirely fair to say that Facebook has had its share of ups and downs over the past year, and noticeable fluctuations have been observed in the stock price.
Ever since Facebook became a public offering in May 2012, it has consistently maintained its position as a high-profile company, fascinating to the public eye. Facebook is also a vital member of the immensely popular FAANG group comprising of several other tech giants like Amazon, Netflix, Apple, and many more. Post its initial public offering, Facebook has witnessed an extreme and smooth rise for several consecutive years.
Of course, it has not been a completely smooth run for Facebook, and several alarming issues came to rise in the year 2018. Invasion of user privacy, fake news, the allowance of criminals and terrorists to use the site, and user data breach – that too in massive proportions were some issues were few of the burning issues that Facebook has had to face.
Facebook faced the worst criticism for its inadvertent assistance of the British consulting firm (now defunct) Cambridge America for data mining and misusing millions of user-profiles on Facebook for the U.S. presidential election campaigns U.K.’s Brexit referendum campaign.
As an aftermath of the personal data scandal, Facebook issued lower guidance for ad revenue in the earnings report of July 2018, which plummeted the company’s stock by 20% at one point in time, which was the most significant drop ever. This also happened to be the biggest loss of market value in the U.S. stock market history. More than $100 billion was lost.
Despite the aforementioned financial troubles, the general outlook for Facebook as an organization remains positive. A lot depends on the way its stocks are analyzed. With this guide, investors should get a clear idea about potential pitfalls and what they should look for when investing in Facebook and other similar stocks. Before buying any stock, one should ensure that the company and the stock have a sufficient amount of potential to perform well in the market. Both fundamental analysis and technical analysis are needed.
The company’s financials should ideally be researched by the investors, which can later be found in its SEC filings. An investor relations page should be present on the company’s website. Several financial sites offer useful information that is company-specific.
To buy a Facebook stock, the ad revenue growth should be analyzed by the investor – including mobile growth, trends of usage, risks to operations, guidance, and outlook. The trends for profit margins, the total revenue generated, and the monthly active users should also be looked at. Post being duly diligent and comfortable with buying the stock, it should determine whether the current price is equivalent to an appropriate entry point.
Valuation metrics are calculated by fundamental analysts by which they can determine whether the stock is undervalued or overvalued. The most common valuation metric is the Price/Earnings(P/E) Ratio. For Facebook, the P/E Ratio, as of May 19, 2020, was 29.59. This won’t tell the investor much in isolation, but the stock value relative to its trends can be determined by comparing it to its historical or industry P/E. The historical stock chart trends also determine whether the stock is at a good entry point. Technical analysis helps in looking at the different aspects of price and volume.
Post the investor observing the stock to be of good value at the current market price; the next step would naturally be to determine the number of shares to buy. In most online brokerages, there would be a share calculator attached to the stock purchase process. Manually, the calculation formula is:
A certain amount of research and analysis is required whenever you invest in Facebook or any other stock for that matter. Both potential risks and rewards should be taken into consideration by the investors. A brokerage account is necessary for both investing and trading.
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