It is an ugly day for Facebook, but an unsightly drop for the Menlo, Park, Calif.-based social-media giant may get worse before it gets better.
That is according to the data analysts at Bespoke Investment Group, who say that a sizable double-digit loss for a stock following its quarterly results tends to gather steam toward the end of the regular trading.
On Thursday, Facebook Inc. FB, -19.23%[1] shares of the social-media company tumbled by as much as 20% after disappointing earnings, which is currently wiping out more than $100 billion from its market value. If it closes at this level, it would be the largest one-day decline since the company went public May 18, 2012, according to WSJ Market Data Group.
Bespoke’s analysis indicates that on average, when stocks open 15% or lower after earnings, as Facebook did Thursday, they tend to close even weaker by the end of the trading day.
“Since 2001, 2,449 stocks have gapped down 15% or more on earnings. On average they have continued lower by 27 basis points from the open to the close of trading after the initial gap down,” the Bespoke report indicated.
That said, Bespoke acknowledges the temptation to buy the so-called dip. So far this year, buying stocks that dropped by double-digits at the open and selling at the close would have been a good short-term trade, according to Bespoke.
“We’ve seen 80 stocks gap down 15% or more on earnings so far in 2018, and they have averaged a gain of 91 bps from the open to the close following the initial gap down,” Bespoke said in a tweet.
Opinion: Facebook pays for all its mistakes at once, and it is a big bill[2]
So-called FAANG stocks (Facebook, Apple Inc. AAPL, -0.13%[3] Amazon.com Inc. AMZN, -2.50%[4] Netflix Inc. NFLX, +0.17%[5] and Google-parent Alphabet Inc. GOOG, +0.03%[6] GOOGL, +0.30%[7] ) historically have seen similar recovery from the opening bell until close when they gapped down following earnings.
“When FAANG stocks specifically...