In the light of the fact that I have been extremely bullish on Facebook, I thought today would be a good time to revisit that opinion. I did have Facebook near the very top of my 2014 power rankings, but since then the stock has increased almost 15% and a new set of earnings was released which always gives us a fresh look into what is being done. As expressed last week, I do have a strong belief in Mark Zuckerberg; however, choosing to purchase or not always comes down to valuations. At these levels, would I put more money into Facebook? Let’s start off by looking at some numbers:
|Ticker||Name||Price||PE Ratio||PE Next Year||Return YTD||Sales Growth||Analyst rating||Book Value||Beta||Revenue/Share|
- Warning! GuruFocus has detected 2 Warning Signs with FB. Click here to check it out.
- FB 15-Year Financial Data
- The intrinsic value of FB
- Peter Lynch Chart of FB
That translates into a 72 P/E based off of 2013 EPS, 51 over 2014 and 38 over 2015.
I continue to believe that Facebook has a tremendous future:
-It is led by Mark Zuckerberg, who I would bet more on than anyone in tech these days.
-While the growth in users and activity is not likely to keep up, I am paying a lot more attention to monetization efforts (mostly advertising these days).
-I continue to believe that Facebook can expand into other advertising methods (ad network is already being tested, etc).
-The launch of Facebook apps and its first product “Paper” is highly encouraging and makes a ton of sense.
I do think that Facebook can expect strong growth for many years to come and warrants a strong P/E ratio.
There Is Risk Involved
I’ve already said over and over that Facebook is no MySpace. That being said, there is risk involved that the next big thing could emerge and take down Facebook. I happen to think that risk is very small in the short to medium term, but the growing trend of new apps/social networks that are able to gain millions of users within a few months is something to look out for.
This should not impact my decision, it really should not; however, buying Facebook for $65 that I originally bought for under $20 doesn’t feel right. I always try to ignore such factors but they do exist so it’s probably a good idea to be aware of them.
As I have explained, when I make my long term speculative picks, these are longer term trades and I also take bigger positions than I would for other types of trades. Since the stock has increased by over 200% since then, you can imagine that the % of my portfolio invested in Facebook is significant which is not ideal.
Yes, I’d Buy More Facebook
I still believe in the upside of owning Facebook compared to the overall market, and I may end up buying more. What I would say, is that it’s no longer a “screaming buy” in my opinion. So it is also very possible that other stocks could provide better buying opportunities at these levels. I do love the company though, so it is always possible that if I see some kind of decline, I’ll jump in to add to my position.
Disclaimer: Long Facebook (NASDAQ:FB)