Low-risk Buying Opportunity for Meta / Facebook Investors.

 

For a company like FB that previously commanded an earnings multiple of nearly 30, a weaker earnings trend than anticipated can wreak havoc, and this is exactly what we've seen, with FB correcting nearly 50% from its highs in less than six months. The good news is that this has left the stock quite reasonably valued, sitting at less than 14x FY2023 earnings estimates. This is a very reasonable multiple for a stock that's expected to see a new high in annual EPS in FY2023 and FY2024, after a blip in FY2022 ($12.55 vs. $13.77).

In fact, FB's historical earnings multiple sits closer to 30 over the past decade. Even if we adjust for the slower growth rate going forward and assign a fair earnings multiple of 18, this still points to a fair value of more than $266.00 per share. This translates to more than 25% upside from current levels, suggesting that the stock finally offers some value to investors. Let's look at the technical picture below:

(Source: TC2000.com)

Moving over to Meta's technical picture, we can see that the stock has plunged by nearly 50% from its highs and has found itself hovering just above a key support level at $190.00. Meanwhile, there is no strong resistance for the stock until $317.00, given that no strong resistance levels have been built on the way down, due to the torrid pace of the correction. This provides investors with a more than 10 to 1 reward/risk ratio from a technical standpoint from the $200.00 level.

Obviously, this attractive reward/risk ratio does not have to translate into higher prices, but it certainly has created a relatively low-risk buying opportunity for investors. Hence, for investors anxious to add exposure to FB to their portfolios, I would view any pullbacks below $200.00 as an attractive point to start an initial position in the stock.

While we have not seen any confirmation of capitulation from a sentiment standpoint, the market has become quite oversold short-term and is nearly as oversold as it was in March 2020. This technical setup favors being open-minded to a short-term bottom and the potential for a 10% plus rally in the QQQ from the $320.00 level. With FB trading at less than 14x FY2023 earnings estimated offer low-risk entries below $200.00 respectively, for an initial position.

Disclosure: We have 100 units positions in stock mentioned but may start a new position in META in the next 24 hours.

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Technical Analysis for FB by TradingView