Meta’s Charts Show Caution Signs Ahead of Next Week’s EarningsFacebook parent and “Magnificent Seven” member Meta Platforms NASDAQ:META will release fourth-quarter earnings next Wednesday (Jan. 29) after the bell. Let’s check out social-media giant’s technical and fundamental picture heading into the report.
Meta’s Fundamental Analysis
Over the past four quarters, META has moved 9.9% on average the day after reporting earnings. So, expect the potential for significant volatility and be mentally prepared for it.
As I write this about a week ahead of earnings, a combination of one META call and one META put that are both 10% out of the money are trading for about $19 in combined premiums. That’s less than 3% of the stock’s $636.45 Thursday close.
Analysts’ consensus view at last check was for the company to report $6.75 in GAAP earnings per share on roughly $47 billion of revenues. That would compare very well to the $5.33 in GAAP earnings per share that META reported on $40.1 billion of revenues a year ago, reflecting about 17% in year-over-year sales growth.
Digging into META’s financials, the firm has been a cash-flow beast.
The company had $82.7 billion in operating cash flow as of Sept. 30. And after capital expenditures, the firm still created $52.1 billion in free cash flow.
Of that, META used $48.2 billion during the third quarter to repurchase common stock while dishing out $3.8 billion in cash dividends to shareholders.
In short, the company returns free cash flow to its investors, which is how things really should be.
Looking at META’s third-quarter balance sheet, the company ran with a $70.9 billion cash position and $91.1 billion of current assets as of Sept. 30.
Current liabilities added up to $33.3 billion, which included no short-term debt and no unearned revenue. That makes the firm’s so-called current ratio easy to calculate as 2.73, which most investors would consider very healthy.
Total assets amounted to $256.4 billion, of which just $21.6 billion covered so-called “intangible” assets.
Total liabilities less equity came to $91.9 billion, including $28.8 billion of long-term debt. However, that's something that META could take care of almost 2-1/2 times over out of pocket with its Sept. 30 cash position, so that doesn’t look like an issue.
All in, many investors would say that the firm looks extraordinarily fundamentally sound.
Meta’s Technical Analysis
However, META’s six-month chart as of Wednesday (Jan. 22) seems to show that the stock doesn’t look as good technically as it does fundamentally:
What we see here is a lengthy “rising wedge,” as denoted by the green box above.
That’s historically a pattern of bearish reversal. In fact, the most positive thing we could say about this pattern is that the wedge doesn’t yet appear ready to close (which could provoke a violent move downward if that happens).
META’s Relative Strength Index (or “RSI,” the gray line at the chart’s top) is also better than neutral.
Similarly, the stock’s daily Moving Average Convergence Divergence indicator (or “MACD,” denoted by the black and gold lines and blue bars at the chart’s bottom) is in decent but not great shape.
The histogram of Meta’s 9-day Exponential Moving Average (or “EMA,” marked with blue bars) is ever so slightly above zero. And the 12-day EMA (the black line) is running above the 26-day EMA (the gold line), if just by a smidgen.
Add it all up and META’s downside pivot here would be the stock’s 50-day Simple Moving Average, denoted by the blue line above ($597.80 in the chart above vs. the stock’s $632.25 Thursday afternoon). The 50-day SMA appears to be running even with the rising wedge’s lower trendline.
However, check this other chart out:
This chart shows a so-called “double top” pattern of bearish reversal that stretched from mid-November to today (marked with two red boxes at right above). That pattern’s neckline -- $580 vs. Meta’s $632.25 as of Thursday afternoon -- would serve as the downside pivot here.
So, technical analysis is currently flashing two bearish patterns of reversal working against further upside momentum for the stock.
The one saving grace for META bulls is that the stock developed another double-top pattern back in September/October (the two red boxes at left).
However, that one didn’t lead to a big sell-off. So, there’s precedent here for META to defy bearish-looking technicals.
The bottom line -- caution is the word going into META’s earnings next week. The charts above don't necessarily mean that a sell-off is imminent, but there are some historically bearish technical set-ups in play.
Those who are long the stock should stay on their toes and might consider hedging their positions through the options market or some other way.
(Moomoo Technologies Inc. Markets Commentator Stephen “Sarge” Guilfoyle” had no position in META at the time of writing this column.)
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