Facebook Inc Headed For A Test Of Uptrend Support

Facebook Inc FB shares have come off of recent all-time highs, right along with the rest of the market.

The question for Facebook watchers, and market watchers, is whether the stock will be able to fend off the selling pressure being created and hold up at or above key uptrend line support. Are the company's fundamentals and prospects great enough to justify the current rather lofty valuations?

What The Bulls See

• Net profit margins of 23.78 percent.
• Positive levered free cash flow of over $3 billion annually.
• A strong balance sheet: nearly $14 billion in cash reserves versus only $300 million in debt, a current ratio of 12.82 and a debt-to-equity ratio of under 2 percent.
• Projected growth in sales and EPS of 34.6 percent and 25.3 percent, respectively.
• A stock price that is still in “healthy” territory above its uptrend line.

Related Link: Tesla Motors Inc Shares Set To Test Key Support At $230

What The Bears See

• Very rich valuation metrics: a price-to-book of 11.05, price-to-sales of 20.52, price-to-earnings ratio of 38 (which is on the expensive side of neutral even for a company sporting such lofty growth estimates) and a market capitalization of $199 billion that trumps the company's enterprise value of $191 billion.
• A stock price with room to tumble, if the uptrend line is broken when tested at some point very soon.

Technical Take

Technicians note Facebook shares get the benefit of the doubt, as long as the uptrend line holds up as support at $74.70. If that uptrend support fails, the next levels of support for the stock come in at the July 23 close at $71.29 and at two horizontal lines of support at $68.06 and $62.21. If the uptrend line support holds up as the bulls hope it will, the initial upside target will be the recent high at $79.71, which is then followed up by nothing but projections starting at around $87.