Should you invest in Facebook as the company is slummed for choosing profits over safety?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 5, 2021
  • Facebook shares bounced back 2.46% on Tuesday, partially recouping Monday’s losses of about 5%.
  • The stock plunged at the start of the week after the whistleblower Frances Haugen called it for negligence.
  • Haugen claimed the company is aware of how its platforms are used to spread hate, violence and misinformation.

On Tuesday, Facebook Inc. (NASDAQ:FB) shares edged higher 2.46% to trim Monday’s declines. The stock plunged by nearly 5% at the start of the week after the whistleblower Frances Haugen claimed the company was aware of how its platforms are used to spread hate, violence and misinformation.

Haugen added that Facebook has tried to hide evidence of how its platforms could have a negative impact on children, particularly young girls.

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Facebook was inaccessible for nearly six hours on Monday while the social networking company’s other platforms, Instagram and WhatsApp, though accessible, could not load new updates.

Haugen is scheduled to testify before the Senate subcommittee on Consumer Protection, Product Safety, and Data Security on Tuesday after releasing several pages of internal documents to regulators and the Wall Street Journal.

Should you buy or sell FB shares?

Given the contingent nature of the claims made against Facebook, the stock could experience high levels of volatility in the short term. 

However, from a valuation perspective, Facebook shares trade at reasonable trailing 12-month P/E and forward P/E ratios of 24.19 and 17.19, respectively. As a result, value investors could find the stock exciting, barring their inclination to morals and ethics.

Moreover, analysts expect the company;’s earnings per share to grow by 57% this year, before rising at an average annual rate of 28.60% over the next five years. Therefore, FB shares seem to offer exciting growth prospects at a competitive valuation.

On the flip side, if the social media giant is found to have breached any laws under consumer protection, product safety, and data security, the ramifications could have a negative impact on the stock price.

Source – TradingView

Is it a false rebound?

Technically, Facebook shares appear to be trading within a descending channel formation in the intraday chart. However, the stock seems to be attempting a rebound following Monday’s sharp decline. 

Therefore, investors could target potential rebounds at $355.13, or higher at $380.81. However, the rebound could be false amid increased bearish market bias after the recent developments. 

Therefore, the stock could extend declines before finding support at $302.51, or lower at $276.52.

It could be too soon to bet on the rebound

In summary, with Haugen scheduled to testify before a Senate committee on Tuesday, Facebook’s 2.46% rebound could turn out to be false. 

As a result, despite FB’s compelling valuation multiples and exciting growth prospects, it would be best to monitor developments before buying the stock.

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