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Forget FB — Sell Facebook Stock Now

facebook stock logoLast week, Facebook (FB) set an all-time high, with the social media giant making whole even the poor saps who bought at the absolute intraday peak during the much-maligned Facebook IPO.

But FB stock has faded from $45 in a hurry during the past few days, and there’s good reason to expect continued declines in the near-term as sentiment cools.

And beyond that, a host of long-term headwinds are staring down Facebook stock as the buzz builds for a Twitter IPO and online advertising trends remain rocky.

So sell FB stock now while there’s lots of daylight between October earnings. If we see weak margins or what very well could be a decline in U.S. users, Facebook stock is in for a serious tumble.

Admittedly, the feel-good story of an new all-time high is nice for Facebook stock. But don’t get carried away. The recent FB earnings beat in July included a dramatic shift to mobile that pleased investors, but let’s not forget that Facebook still is plagued by thin margins and a generally murky online advertising scene that is putting pressure on everyone — from FB to Google (GOOG) to Yahoo (YHOO) to AOL (AOL) to even the smaller web publishers.

FB Challenges: Margins and U.S. Users

Consider that non-GAAP operating margins for FB were 53% in the second quarter of 2011, 43% in Q2 2012 and 44% in Q2 2013. One could say that Facebook margins aren’t actually growing, just stabilizing.

Also consider that even though roughly 70% of monthly active users connect with Facebook on mobile devices, the mobile segment generated 41% of all FB ad revenue as of the second quarter. While that’s a big improvement on Q1′s 30%, it’s still a disparity to watch as users move away from desktops even more.

The icing on the cake is that while Facebook talks up emerging markets, users are actually in decline in the U.S. and parts of Europe. U.S. users may show year-over-year declines as soon as next quarter. And bigger-picture, you have to be realistic about global prospects given competitors like Sina Corp.’s (SINA) Sina Weibo in China that won’t cede ground to Facebook without a fight.

Facebook Stock Will Fade

Sure, Facebook earnings beat expectations and the FB transition to mobile has been an unmitigated success in an age when many tech companies struggle with mobile. FB users on mobile devices have exploded from 293 million in the second quarter of 2012 to 469 million in the second quarter of 2013 — a feat that cannot be overlooked.

And yes, the doubler in FB stock from under $20 last year during the height of Facebook fatigue means that Wall Street was unfairly betting against this pick pretty recently.

But continued improvement in margins, mobile and international users are not the foregone conclusions some think they are. Remember, Facebook is a very young company, so there’s a lot of noise here amid the long-term trends that really matter. Throw in a forward P/E for Facebook stock that is roughly 50 times fiscal 2015 estimates, according to Standard & Poor’s, and there’s not much room for error in FB.

In short, I wouldn’t buy Facebook stock at these levels. At $20 a share, FB clearly was a steal, and I still would buy Facebook if it fell under $30.

And getting back there is a very real possibility for FB.

If you’re sitting on big profits in Facebook stock, my advice is to trim back or get out altogether before the ride ends badly. If U.S. Facebook users decline or margins roll back, all this optimism will evaporate in one trading session.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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