Lock-Up Expiration Could Signal Bottom for Facebook
Published: Friday, 10 Aug 2012
By: Lee Brodie
The Facebook [FB 21.807 0.797(+3.79%)] faithful have been all but confounded by the stock’s action over the past several months. Before the Facebook IPO some pros including Anthony Scaramucci of SkyBridge Capital thought shares would double in short order. But they didn’t.
In fact, questions about the company’s ability to generate profit thwarted bulls with the sell-off slashing shares by about 50% since late May.
And lately the price action has gotten even worse. Over the past several weeks, the stock has been stuck in the mud, with investors fearing an imminent lock-up expiration will drag shares even lower.
Facebook will free up nearly 1.7 billion shares – four times the number now trading – starting mid-August as provisions that had barred employees from selling their holdings begin to expire. However, the stock may be near a bottom.
"Watch how the stock reacts as the flood of shares come onto the market," says trader Josh Brown, author of The Reformed Broker blog. What happens next, he says, is a classic ‘tell.’
“If Facebook doesn’t get rocked below 20 – it may be an all clear sign. It may be ok to own into the 4th quarter,” he says on CNBC’s Fast Money Halftime Report.
Many pros, including OptionMonster Jon Najarian and famed pundit Henry Blodget have told us in the past that $20 was key. At that level, they say Facebook is more fairly valued.
"It’s been a long time since I’ve had anything positive to say about FB,” adds Brown “But there’s no question in my mind that FB will be a dominant Internet company for a long time to come. If you’ve been looking to get in, and the stock holds $20, this may be the opportunity.”
