The leading social network, Facebook Inc (NASDAQ:FB), is continuing to dominate the app world and has delivered better than expected results last earning release. Though the company is traded at a very high PE ratio (99), the growth is very impressive and is expected to continue in the following quarters. According to analyst’s projections, the forward PE ratio is 34, and will continue to decrease as the EPS grows.
Looking into the growth engines, we can see that the current main engine is mobile:
Facebook is also working on its next growth engines, most promising are:
- Instagram – The picture-based social-network has started a pilot program for ad-campaigns inside the app, and is reporting results up to 3 times better than conventional campaigns. Analysts expect revenues of $2.8 billion in 2017 from instagram alone.
- Oculus rift – while it is still too early to to project revenues from this venture. The project looks very promising and has already gathered a community around it.
Year to date the company yielded 21%, and after the last earnings release the company has gapped up ~5% and is trading around $94-$95 for the last couple of weeks.
If we compare current price to analysts price estimates we can see that the average estimate is $110 per share (16% increase), the low estimate is $68 (-28% decrease) and the high estimates are at $146 (55% increase).
Our trade will allow you to enjoy the increase in Facebook’s share price, but will limit your risk on the down side: We look at buying a call on strike $90. This will allow us unlimited profit, if the stock rises, but will limit our loss, if it crushes.
Here is the summary of the trade:
- Buy call strike $90 for Aug 28. Price: $510
- Max loss: $510 – Only 5.4% from the maximum loss if buying FB shares.
- Break even point – $95.1 – only 1% above the current stock price.
- Average daily volatility – 2.7% – While we only need a rise of 1% to be profitable, the stock moves 2.7% on average every day. This increase our odds to profit.
- The company and the market trends are bullish – This increases the chances of profit.
- To see the full analysis and an interactive profit/loss graph: http://optionsamurai.com/trade/12758
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