Facebook’s (NASDAQ:FB) stock price could outperform its impressive 2019 with an even better year in 2020, although the ride may be bumpy.
Lawmakers and regulatory agencies could continue to pressure Facebook in 2020, market expert Hilary Kramer told Stock Investor. Potential investors might be put off by these continuing developments, but current investors have hardly noticed.
“Facebook is very reasonably priced in the current environment for growth stocks at 20x 2020 earnings per share (EPS),” said Kramer, the head of the 2-Day Trader service that has netted profits in 20 of its first 25 trades. “However, increased regulation in both privacy and anti-trust matters remains a cloud.”
Big tech companies have been under attack by lawmakers on all sides of the political aisle and regulatory agencies. Foremost among the stocks is Facebook.
Despite Regulatory Risk, Facebook’s Stock Price Could Outperform Again
Facebook founder and Chief Executive Officer Mark Zuckerberg has testified at public hearings on Capitol Hill several times in the past two years, facing continuing pressure by Republicans and Democrats for an alleged bias against them.
Despite the pressure mounting on the company, investors have hardly noticed the effects and Facebook is up more than 57 percent year to date. In fact, Facebook has more than doubled the performance of the Dow Jones Industrial Average, which is up 22 percent year to date (YTD), and almost doubled the S&P 500 Index, which is up 28 percent YTD.
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Tech companies surged in 2019 thanks in part to rate cuts by the Federal Reserve, the New York Times reported Dec. 10. Additionally, as the trade war with China seemingly moving in a positive direction with the passage of a “Phase One” trade deal, the gains experienced in the tech sector are likely to rise.
Few would have predicted such a profitable outcome for Facebook, but its long-term revenue stream is still in question. Facebook needs to diversify its revenue stream, said Kramer who hosts a national radio investment program called “Millionaire Maker.”
“At some point, the company will need to do more than sell advertising to continue its growth, but regulation may make that difficult,” said Kramer, who also leads the GameChangers advisory service that has booked 33 profitable trades in its last 39 closed positions.
“However, despite these issues, I think given the current growth and valuation, the stock will outperform in 2020,” she said, noting that the share price fell on Dec. 10 when it reported that it won’t cooperate with law enforcement by opening encrypted messages for them. “However, the ride may be a bumpy one.”
Resilient Facebook’s Stock Price Could Outperform Again in 2020
Indeed, Facebook’s growth the past few years has been bumpy, missing consensus earnings expectations in the first two quarters of fiscal year 2019. The company had earnings per share (EPS) results of $0.85 in Q1 2019, missing estimates of $1.63 by $0.78. Additionally, it reported Q2 2019 EPS results of $0.91, missing expectations of $1.88 by $0.97.
Despite some misses, the company had plenty of hits, including beating EPS expectations in Q3 2019 by $0.21.
Annual revenue and earnings continue to grow at Facebook, as well. In fiscal 2018, annual revenue was $55.84 billion, an increase of more than 211 percent since 2015, when the company reported annual revenue of $17.9 billion.
Since the company went public in May 2012, Facebook’s share price in up more than 417 percent. Despite Facebook’s big gains in 2019, Argus Research still is recommending the stock as a “Buy.”
Kyle Perisic is an editorial staffer with Eagle Financial Publications.