Facebook (FB): Undervalued or overvalued?
From Cabot Wealth Advisory 9/20/16 Sign Up for Cabot Wealth Advisory—it’s free!
Facebook (FB) stock enables people to connect, share, discover, and communicate with each other on mobile devices, personal computers and other electronic gadgets worldwide. Facebook is led by Mark Zuckerberg, the 32-year-old founder, chairman and CEO.
FB stock earned $2.12 per share and produced $22 billion in sales generated by 1.1 billion daily active users as of June 30, 2016. The company is expected to grow earnings at a 35% pace during the next three to five years with more rapid growth expected during the next couple of years. At 60.6 times current EPS (earnings per share), Facebook shares appear to be overvalued.
But using the PEG ratio to determine if Facebook is undervalued or overvalued provides a clearer evaluation for FB stock. Based on the company’s current EPS and expected earnings growth during the next five years, Facebook’s current PEG ratio is 1.74. However, if we look at Facebook’s future value two years from now, we find that Facebook’s PEG ratio is 1.09.
I like to buy growth stocks with PEG ratios of 1.00 or below. To achieve a two-year forward PEG ratio of 1.00, Facebook shares need to fall to 118.50. I usually don’t use forward PEG ratios, but Facebook is a great company with a proven track record and exceptional management. I believe you will be well rewarded if you purchase FB stock at 118.50 or below. Click here for more information.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 4/4/16 Sign up for Cabot Wealth Advisory—it’s free!
More recently, Facebook (FB) has been gaining great sponsorship from both institutional and individual investors, as the company works to monetize its vast user base as well as its impressive portfolio of properties—particularly Instagram, Messenger and What’s App.
Since early February, FB is up 17%. Last week it hit resistance at 116, which is where the stock topped out at the end of January. I think it’s just a matter of time until FB breaks out to new highs.
Now, you might ask, “But isn’t FB also a popular stock like AAPL?”
In a word, “No.”
While Facebook the company has been around quite a while, FB the stock only came public in 2012. It’s less than four years old. And that four-year period was not a period of strong bull markets, so my conclusion is that FB is still under-owed by investors.
Which explains why it’s going up now. And why I think it will continue to go up.
Perhaps you should own some.
More to the point, perhaps you should get professional guidance on exactly when to buy some FB—and eventually on when to sell it. To get started, take a look at my own advisory, Cabot Stock of the Month, which every month features one great stock that’s previously been recommend by one of the Cabot analysts. The result is a well-diversified portfolio of growth stocks, value stocks, international stocks and dividend-paying stocks—all in one convenient and easy to follow advisory. You can find details here.
From Cabot Wealth Advisory 11/19/12 Sign up for free Cabot Wealth Advisory e-newsletter
I don't think the market is so far gone that a new uptrend is going to take months to develop; it's not 2008 out there. And for that reason, I'm busy building my watch list. When doing so, I'm focusing on stocks with three main characteristics.
First, I want stocks that are holding up well; sure, something that's fallen 30% can and probably will bounce, but such a decline will take time to heal.
Second, I want stocks that have shown some type of major buying volume during the past month, whether it's because of good earnings or something else. This tells me that, despite the poor market, institutional investors are accumulating shares at opportune times.
And third, of course, I want something that has a good growth story--a company with a unique competitive advantage that could propel the stock higher when the bulls return.
Right now, there aren't too many stocks that fit these criteria, but one that does is Facebook (FB), the well known but much-hated (at least in stock market circles) social media leader. Obviously, the company's IPO was a mess, and to be honest, I'm worried that the stock's huge float (about one billion shares!) could keep the stock waterlogged for a long time.
But there are plenty of things to like, too. First, the firm had a very encouraging third-quarter earnings report; CEO Mark Zuckerberg dispelled the notion that the company's mobile business is sputtering, as mobile made up 14% of all ad sales in the quarter (about $150 million), and accelerated as the quarter went on. One analyst said that mobile ad revenue was at a $1 billion run rate by quarter's end!
All told, revenue was up 32% for the second straight quarter, and analysts are looking for 28% growth for all of 2013, a sign that the firm's deceleration is over. And other metrics were equally encouraging--I liked that daily active users rose 6% sequentially in the third quarter, a slight pick-up from the prior quarter.
I have little doubt the company can continue to grow and much of that will fall to the bottom line. And, impressively, even though the stock's "lock-up" expired last week (millions of closely-held shares were finally eligible to be dumped), FB ramped on its biggest volume since its IPO! But it's more than just that one clue--this stock bottomed out 11 weeks ago and reacted very well to earnings in late-October.
If you really want in, a small position (no more than half of what you'd normally buy) on a dip of a point or two is possible, or just keep it on your watch list--the longer FB can hold up and show signs of accumulation, the better the chance it can be an institutional favorite of the next major market upturn.
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1601 Willow Road
Menlo Park, California 94025
|Index Membership: N/A
Industry: Internet Information Providers
Full Time Employees: 4,331
11/19/12 Facebook (FB): Stock's holding up, with volume, and the company's growing