Facebook (FB) stock nicked $34 in early trading today with a 25% surge, marking the social media stock’s highest levels since immediately after the May 2012 IPO.
That wasn’t a short squeeze, either, since a mere 2% of the float was held short. This was honest-to-God buying by investors who believe in Facebook stock.
But will the rally in Facebook stock last?
I think it will. Facebook earnings yesterday after the bell were remarkably strong, including big mobile growth and continued expansion despite the “law of large numbers” working against the already-dominant company.
There are reasons to be very optimistic about Facebook after this report — and because the market seemingly had given up on it for so long that it is one of the few issues out there that isn’t at risk of being grossly overbought.
There are risks, of course.
The continued advertising pressure for media sites like Yahoo (YHOO) is shared by Facebook — but that hasn’t stopped FB growth. The forward price-to-earnings ratio of around 40 is also a bit rich, even for a company like Facebook.
And I remain convinced that there is eventually going to be critical mass for Facebook stock after the negativity inevitably moves into pie-in-the-sky turnaround hopes.
But for the time being, there’s a good case for stability at worst in shares and the potential for more upside.
Remember, we’re still a ways away from the offer price of $38. But if Facebook stock crosses that … it could be off to the races.
- Sorry I doubted you, Zuck! (The Slant)
- Facebook and its “dumbphone” efforts. (Quartz)
- Tom Taulli chronicles a less-than-impressive effort, Facebook’s Mobile Reader. (InvestorPlace.com)
- Facebook earnings details. (Slate)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.