Meta rallies, but is the low in?

[MongiIG]

Meta has rallied by almost 30% from its low for the year, but is still down 70% from its record high. Is the worst over for the tech stock?

Source: Bloomberg

 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Monday 14 November 2022 

Meta stock price bounces, but for how long?

Last week’s weaker CPI figure in the US and news of a wave of job cuts at Meta prompted the stock to surge from its low for the year.

 

Hopes of a slowdown in inflation in the US, leading to a potential slowing of the rate of interest rate increases, caused a broad market rally last week. Tech stocks have been one of the big losers of the 2022 bear market, so it was perhaps not surprising that they were at the forefront of last week’s bounce.

 

In addition, after so much coverage of rising costs, the news that Meta would begin a run of savage job losses also saw the stock gain ground. Investors have watched with concern as Mark Zuckerberg continues to focus on the Metaverse even as revenues fall and costs rise at Facebook, the heart of his empire.

 

Stock now cheap relative to history

Perhaps unsurprisingly, the stock is recently hit its lowest valuation in more than five years. At the low for 2022, Meta traded at just 8.6 times earnings, a remarkable turnaround from its 2020 highs of 25 times earnings.

 

In relative terms at least, Meta is now a bargain. This might tempt in fresh investors, though with a recession still possible in 2023 for the US and indeed the global economy, there is a high risk that cheap stocks like Meta will get cheaper next year.

 

Meta stock price – technical analysis

The weekly chart for Meta shows the extent of the falls over the past twelve months, within the context of the huge rally from 2016 onwards.

 

It is clear that the stock price remains firmly in a downtrend, with even the near-30% surge from the lows of the year only recouping the past month’s worth of losses.

 

Trendline resistance for the stock, beginning in late December 2022, would come into play around $138, leaving the downtrend firmly in place. The 2018 and 2020 lows at $122.89 and then $137.12 would also be potential upside targets in any medium-term rebound.

Source: ProRealTime