Facebook shares are facing an underappreciated risk from rising costs, according to Societe Generale, one of the few firms tracked by Bloomberg to be bearish on the social-media company.

Analyst Simon Baker has a sell rating on the stock, and his US$120 price target is the lowest on the Street, implying downside of 38 per cent from Facebook’s Friday close. The average price target is US$234, according to data compiled by Bloomberg.

The cautious comments come in the wake of Facebook’s third-quarter results. While the report beat consensus expectations, Societe Generale singled in on the company’s “pivotal” guidance for capital expenditures, which “reflects Facebook’s higher exposure to privacy and security concerns.”

Facebook is grappling with “a tornado of privacy, security and regulatory issues,” and the “costs of tighter regulation are kicking in.”

Shares of Facebook rose 1.5 per cent on Monday in their third straight daily gain.

The capex outlook “has significant implications for the stock” if shares are valued on the basis of free cash flow — as Baker argues they should be — rather than earnings. In terms of 2020 enterprise-value to free cash flow, the stock has a valuation of 23.8, above Alphabet’s 20.4x valuation. Baker reiterated his preference for owning Alphabet, the parent company of Google.

Societe Generale is one of only two firms tracked by Bloomberg to recommend selling Facebook shares. Forty-seven firms recommend buying the stock, while five analysts have the equivalent of a neutral rating.

Shares of Facebook are up 50 per cent thus far this year, more than twice of Alphabet’s 23-per-cent gain.