Facebook’s Stock Falls 6% In A Week, Is It An Aberration?

Facebook’s stock (NASDAQ: FB) fell almost -6.1% in the last one week and currently trades at $251 per share. The fall was triggered by fear of reduced future subscribers due to some political groups leaving the site.

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last 20 years, returns for FB stock average close to 8.3% in the next one-month (21 trading days) period after experiencing a -6.1% fall over the previous one-week (5 trading days) period.

But how would these numbers change if you are interested in holding Facebook stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test Facebook stock chances of a rise after a fall and vice-versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF Facebook stock moved by -5% over 5 trading days, THEN over the next 21 trading days, Facebook stock moves an average of 3.3 percent, which implies an excess return of 1.7 percent compared to the S&P500.

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More importantly, there is a 62.3% probability of a positive return over the next 21 trading days and 53.8% probability of a positive excess return after a -5% change over 5 trading days.

Some Fun Scenarios, FAQs & Making Sense of Facebook Stock Movements:

Question 1: Is the average return for Facebook stock higher after a drop?

Answer:

Consider two situations,

Case 1: Facebook stock drops by -5% or more in a week

Case 2: Facebook stock rises by 5% or more in a week

Is the average return for Facebook stock higher over the subsequent month after Case 1 or Case 2?

FB stock fares better after Case 2 — with an average return of 2.6% over the next month (21 trading days) after Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 4% after Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days after Case 1, and an average return of just 0.5% after Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Facebook stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Facebook stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For FB stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Facebook after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise, if you wait for a while?

Answer:

The average return after a rise is understandably lower than a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although FB stock appears to be an exception to this general observation.

FB’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Facebook stock by changing the inputs in the charts above.

While Facebook stock may grow, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy.

See all Trefis Price Estimates and Download Trefis Data here

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