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Why Bargain Hunters Are Steering Clear as Facebook Shares Crater

Facebook shares have been in the tank since the company released its earnings Wednesday afternoon. And Thursday hasn’t offered any relief. Shares were down nearly 20% in early trading, resulting in a market cap loss of more than $101 billion.

Normally, a drop that steep in a company so high profile would bring out bargain hunters, investors who see the opportunity for a quick profit in a popular stock. So far, though, that’s not happening.

That’s not to say it won’t. Investors could be waiting to see if the stock has bottomed or if more bombshells, such as the proposal to remove Zuckerberg as chairman, are still unexploded. And fence-sitters could believe the stock is still overpriced at $175.

More likely, though, market buzzards are holding off because of how quickly some analysts are turning on the company. Three Wall Street firms, including Raymond James, have lowered their ratings on Facebook and reduced price targets since Wednesday’s disappointing guidance. (The company says sales growth will slow in the third and fourth quarter and cut its long-term profit margins.)

Others, though, are still bullish. While 2018’s gains have been wiped out, as of midday, they believe there’s room for recovery. And slower growth on the primary Facebook platform doesn’t overshadow growth on its other holdings, they say.

“Although the Facebook platform is beginning to see slowing growth, the company’s other products are still seeing dramatic growth,” says Michael Pachter of Wedbush. “Instagram has over 1 billion users, and all Facebook apps (Facebook, WhatsApp, Messenger, and Instagram) have 2.5 billion unique monthly users. We expect Facebook to get back on track by the end of 2019, and expect revenues and profits to grow for many years. In our view, the sell-off is overdone and largely unwarranted.”

Those mixed messages from analysts might be causing some hesitation, but a 20% discount on Facebook stock is likely to be too tempting a gamble for bargain hunters eventually. The question is: When will they see a price point they like?