After a botched IPO, Facebook shares fell as low as $25.50 earlier in June at which point we recommended a swing Buy trade. It has sprung back to life with a vigour to close at $33 on Friday – within sight of the company’s initial floatation price if $38 in which 421 million shares were sold to the public on May 18th. From being 34% below its IPO price, it is now down 13%.
The IPO price was steadily increased on expectations of an initial rise in the share price as is often the case with big tech floats. Unfortunately for the IPO participants, the sheer number of shares issued and immediate questions over the high valuation coupled with a lawsuit filed by burnt investors and disclosures of selective briefings of earnings downgrades to certain favoured investors caused a rout that almost halvedthe stock in a little over a month.
The reports that analysts had down played earnings estimates to these favoured clients before the IPO saying that a move to mobile platforms would likely hurt its 50% operating margin over time caused further questions to be asked about management integrity
Longer term investors have returned in recent weeks however despite the colossal $90 billion market cap and 35-50 times forward price to earnings ratio with reports that its mobile ad platform testing has been well received and also that it may in fact exceed its 2Q earnings estimates.
Still, any wobble in performance is likely to send Facebook shares back down again given these ultra high expectations. For a big cap, incredible volatility which means opportunity for traders. For those who took our swing Buy suggestion, time to take profits.