Remember two weeks ago, when Facebook’s stock had crashed all the way to ~$25?
Yes, back then, everyone was absolutely certain that it was going to, say, $18, and they were telling everyone who would listen about that.
Well, you don’t hear from those folks much anymore.
Because Facebook’s stock has bounced off the bottom like Flubber and has now soared back to $31.50.
Why is Facebook headed north all of a sudden?
Here’s my theory:
All the people who bought the IPO expecting a near-term pop have finally blown out of the stock in disgust. And all of the people who are actually interested in investing in Facebook for the long haul–the folks who should have bought the IPO–have quietly been working their way in.
And some shorter-term investors have intelligently reasoned that Facebook is not run by idiots and, therefore, that Facebook will likely have built a lot of padding into the Q2 “estimates” it gave Wall Street analysts prior to the IPO. The odds that Facebook will “surprise on the upside” when it reports its Q2 results, therefore, are good.
And then, of course, all the underwriter analysts are probably putting the finishing touches on their “BACK UP THE TRUCK!” reports, which should be released toward the end of this month. And the analysts will have a bunch of good reasons why Facebook is a great investment at this price–a huge discount to the IPO price–and that it’s a “must-own” for any self-respecting growth investor.
And then there have been some encouraging anecdotal reports about the effectiveness of Facebook’s new mobile ads, which are critical to the company’s future growth.
Put all that together and Facebook has looked like a nice trade.
(When the Q2 results hit, of course, all bets are off. If they don’t truly surprise on the upside–as in, surprise hedge funds, not those who regard “consensus” as the real expectation–Facebook could head for the tank again. After all, the company now has a valuation of almost $90 billion again. And it’s trading at about 40X an aggressive estimate for 2013 earnings of $0.80).
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