Facebook stock wipeout shows how analysts lag behind market in their recommendations

  • Facebook has lost the equivalent of a Chevron, Intel or Coca-Cola in market value in four months
  • Analysts have largely stuck to their recommendations to buy the stock through the wipeout
PUBLISHED : Monday, 26 November, 2018, 9:53am
UPDATED : Monday, 26 November, 2018, 9:29pm

Investors would have lost a lot of money if they had followed the investment advice of equity analysts following the fortunes of Facebook, the social media giant that has seen more than US$200 billion wiped off its market value in four months.

The almost 40 per cent slump in its share price in four months means Facebook has lost in market value about the entire worth of Chevron, Intel or Coca-Cola. Through it all, analysts have largely stuck to their recommendations to buy the stock.

A review of analyst recommendations compiled by Bloomberg, the financial data provider, showed that about 92 per cent of analysts recommended buying Facebook stock on July 22, three days before Facebook reached its high of US$217.50.

Four months later, after continued revelations about Facebook’s perceived role in election interference and data harvesting continued to hog global headlines, 81 per cent of the recommendations were still to buy the company’s stock.

As of Friday’s close in New York, Facebook’s US$379 billion in market cap is smaller than that of Alibaba Group, the parent company of the South China Morning Post.

Over 100 companies suspended from trading as China tech stocks rocked by news US urging allies to blacklist Huawei

Investors have bailed from the US company amid a broader sell-off in Big Tech. Among the various explanations from so-called experts, investors were concerned about rising interest rates and how that could slow the economy and hurt profit growth of tech companies. Investors were also selling high-flying tech stocks, which had become expensive, and put the money into companies considered to be safer bets in the current climate because they paid bigger dividends.

Whichever the case, Facebook’s woes do not appear to be over. In the latest development, the UK parliament used its legal powers to seize internal Facebook documents said to contain information about the company’s decisions on data and privacy controls that led to the Cambridge Analytica scandal, The Guardian reported.

The British political consulting firm harvested personal data from millions of users’ Facebook profiles without consent and used it to target political advertising in the US.

The review of stock recommendations did yield one analyst who reiterated a call to sell Facebook at near the top of the market. This analyst had predicted the stock would fall to US$150 in 12 months, in early July, just weeks before the company’s stock price peaked.

But the same analyst has had the sell rating since January 2015, when Facebook was trading at about US$76 a share. That means investors would have missed out some significant gains as the stock rocketed to a record US$217.50 on July 25.