Facebook Inc.'s (FB) stock has had a strong 2019 with the shares rising by more than double the pace of the S&P 500. However, the stock is approaching a robust level of technical resistance and is seeing some bearish options betting. It suggests the stock's advance may be approaching a turning point.
Shares of Facebook have continued to grind their way higher since the company reported third quarter results at the end of October. The company's earnings came in 13% higher than analysts' estimates, while revenue also beat analysts by around 2%. Despite the better results, analysts have been cutting their earnings outlook for the company in 2020.
Facebook vs. S&P 500
Betting The Stock May Fall
Now, some traders are betting that the stock will fall. On November 20, the open interest for the January 17 $200 puts increased by over 15,000 contracts. Additionally, the January 17 $200 calls saw their open interest rise by over 11,000 open contracts. When digging deeper, using data provided by Trade Alert, it appears that these two trades were part of a spread transaction. The data shows that the puts were traded on the ASK and that the calls were traded on the BID. It means that the puts were bought, and the calls were sold. It creates a transaction, that is a bet that Facebook's stock will not rise above $200 by the expiration date, and that the stock falls from its current price of roughly $197 on November 20.
The Stock Is Nearing Resistance
The technical chart also paints a negative outlook. The stock is currently rising in what appears to be a rising wedge, a bearish reversal pattern. Additionally, the equity is approaching a level of technical resistance around $203. The last time the stock was at that level was in July, and the stock failed on multiple attempts to rise above $203. Should the stock fail at resistance, it could result in the stock falling to support at a price of around $190.
Tradingview
Analysts Are Cutting Estimates
The stock's advance since the end of October followed the company reporting earnings of $2.12 per share, which was better than estimates of $1.88 per share, according to data from YCharts. Additionally, revenue also came in at $17.65 billion, which was better than estimates of $17.35 billion. Also, helping to boost the stock was the company guiding full-year 2019 capital expenses lower to a range of $16 billion t0 $17 billion from a range of $17 billion to $19 billion.
Despite the better than expected quarterly results and lower cost outlook for 2019, analysts' consensus estimates for 2020 have fallen. Analysts’ now see the company earning $9.09 per share, which is down from estimates of $9.27 per share on October 9. As a result, earnings are forecast to grow by 7.5%, despite revenue being forecast to rise by about 22%.
YCharts
It leaves the stock trading for roughly 22 times 2020 earnings estimates. While that earnings multiple isn't expensive for the stock based on its historical range, one could argue that perhaps the stock's valuation seems pricey, given its slow earnings growth outlook. It could be one reason why market trends are suggesting that Facebook's stock may be topping out.
Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.
