Does Facebook Have the Potential for New Highs?

With shares of Facebook (NASDAQ:FB) trading around $64, is FB an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Facebook is engaged in building social products in order to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them with the people they care about. Developers can use the platform to build applications and websites that integrate with Facebook to reach its global network of users, building personalized and social products. Advertisers can engage with more than 900 million monthly active users – or subsets of users — on Facebook based on information they have chosen to share.

Facebook is adopting a multifront strategy to woo fickle smartphone users who crave a variety of ways to send messages to friends. The social network has made two big moves in messaging in just the past five months. In February, Facebook agreed to buy startup WhatsApp for $19 billion. This week, it followed up by recruiting eBay’s (NASDAQ:EBAY) PayPal president, David Marcus, to run its other messaging efforts, including Messenger, which Facebook started requiring people to use for messaging in April.

T = Technicals on the Stock Chart Are Strong

Facebook stock has struggled to make significant progress over the last couple of months. The stock is currently moving higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Facebook is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Facebook options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Facebook options

35.34%

33%

30%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Thursday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.