Earlier today I posted my article about using the weekly Facebook Stock put options for short-term Put Selling. During the day Facebook Stock fell 8.5%. After hours Facebook earnings disappointed investors as Facebook’s profit margin narrowed considerably and the company ended up with a loss of 157 million or .08 cents a share. Meanwhile revenue for the quarter jumped to $1.18 billion from $895 million in the previous quarter. In my article today I had commented that I would expect with a billion Facebook users, the company should be able to generate anywhere from 8 to 12 billion in annual sales. That obviously is not going to happen.With total sales this quarter coming in at just $1.18 billion, that would only earn $4.72 billion in sales if Facebook duplicates the past quarter over the next 3 quarters.
Facebook Stock Calculation of Valuation
Therefore with little track record, it is best to calculate out where Facebook Stock valuation may end up at least short-term. The company has 2.1 billion shares presently. The industry average PE is 36.1 times while presently Facebook Stock is trading at over 96 times PE.
I believe that PE will rapidly change now that Facebook has disappointed investors and analysts. This means going forward analysts will reduce their expectations which will put pressure on the high PE for Facebook Stock.
Facebook indicates that the net loss was caused by stock compensation as otherwise the company would have earned .12 cents a share or $295 million dollars. There is no way to project with any certainty future quarters because there is not a big enough track record, but if Facebook netted $800 million annually that would work out to .38 cents a share.
When Facebook Stock Disappoints Investors
The industry average is 36.1 times PE which would place the shares around $13.72. At $21.00 a share this would value Facebook Stock at roughly 55 times Price To Earnings. I suppose that is not overly high for a tech company, but with Apple Stock trading at 13.5 times Price to Earnings which would investors prefer to own? As well with Facebook now having reported the loss and disappointed investors and surprised analysts, normally a stock such as Facebook Stock will fall as investors will shun the stock for at the least a few weeks.
After hours Facebook Stock fell to $23.97 and I would think tomorrow the shares will trade even lower.
Put Options Rescue Strategy
The great thing about a put trade such as I detailed out earlier today in Facebook Stock is that the put options sold are out of the money being at the $21 and $22 put strikes and expire next Friday. If need be, there are a number of simple rescue strategies depending on how Facebook stock fares over the next week, as the option trade is just a week-long. One of the strategies could include selling out of the money naked calls on any bounce as I would not think Facebook Stock at this time has a lot of upside potential.
Since commencing trading the weekly Facebook put options in late May, the return on the weekly put option trades is close to 20%, which again leaves room for maneuvering should Facebook stock fall lower than $21.00 in the upcoming week. I will keep readers posted on the Facebook Put Trade as the week unfurls and the steps taken to keep the trade profitable. It should be an exciting 6 days to Facebook Options Expiry next Friday.