Facebook (FB) – What are Investors to do? How do you value FB shares? Where are FB shares going? Some Answers!

Reviewing the Twitter feed last night of people listening to the Facebook conference call was filled with frustration.  Analysts’ didn’t seem to know what to ask and management didn’t want to answer any questions to give nervous investors calm.  Facebook will not give any financial guidance and Zuckerberg himself giving listeners limited insight into his plans for the company’s future.

What are investors to do?  How do you value this company?  Where is this stock going?

ModelPrice Guy has some answers.  How? 

Facebook has a balance sheet!  Investors can use EBV levels to determine support and resistance price points.  How can we do this?  See our “Key Concepts” tab for information on our unique approach.

Here is our model price chart as of last night’s computer run, with Facebook’s latest financials.  Our pricing only includes last night’s close at $26.85 and not the after hours price.

Facebook with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Erratum:  The above chart is in error.  See correction blog here.

For those interested, a daily updated chart of FB subsequent to this post will be maintained on Facebook, here.

On Thursday’s night close you can see FB resting at EBV+5 before the earnings were released.  Subsequent trading after the earnings release saw FB shares fall sharply, which we call a negative transit through EBV+5.  At the time of writing this blog, FB shares are trading down over 14% or $3.90 from last night close of $26.85.

With FB transiting down through EBV+5, the next area of support will be EBV+4 or $19.64.  Personal experience has taught me that EBV+4 is not very robust a level of support.  (Keep in mind I have been using these charts for well over a decade.)  So this leaves us with EBV+3 or $15.71 as a possible support level.  (Yes, EBV+3 is more robust a level than EBV+4.)

Trading Considerations I would have knowing Model Price and Facebook fundamentals.

1.  FB broke EBV+5.  This is big.  I quite frankly thought EBV+5 would hold.  Maybe after this spike down in price FB would recover back up to EBV+5.  This would be the only potential positive I would see in this situation.  If FB were to recover to EBV+5, then this will become support for FB for quite sometime until investors and management get use to each other.  So if you are currently holding FB shares this would be your upside – EBV+5 or $27.12.

2.  Capitulation trade has yet to happen.  You can see in our price chart, both private and public transactions that nobody has made any money on their FB positions since the beginning of the year.  This “over hang” of stock must be cleared out.  Investors must give up!  Selling positions at whatever price.  In my view this has yet to happen and is a worrying position for current holders of FB shares.

3.  FB needs to spend some time somewhere to consolidate its’ price action.  Strong hands need to take over the pricing action.  This will happen at one of our EBV levels.  At what level will this happen?  EBV+5, EBV+4, EBV+3 or EBV+2.  I don’t know, but I will know it when I see it.

Conclusion

So there you have it, my assessment on Facebook.  The way I look at this situation, the traditional fundamentalists’ are lost using P/E’s and price to book metrics, the technical guys have nothing other than their 5 minute tick charts but there is a third way.  The Model Price way, using a combination of balance sheet information (the only thing investors’ know is real) to derive EBV lines along with earnings and balance sheet metrics to determine model price (fair value) – less relevant in this situation.

So to be clear, I would be using our EBV lines for potential upside and downside metrics for my trading.  Transits, whether upside and downside will give traders important information on where FB shares will be trading in the future.  In other words by using our EBV lines there will be mathematical structure to the way you trade and invest.

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