The stock of Facebook (NAS:FB, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $345.65 per share and the market cap of $980.1 billion, Facebook stock shows every sign of being fairly valued. GF Value for Facebook is shown in the chart below.
Because Facebook is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 29.4% over the past three years and is estimated to grow 21.25% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Facebook has a cash-to-debt ratio of 5.53, which is in the middle range of the companies in Interactive Media industry. The overall financial strength of Facebook is 7 out of 10, which indicates that the financial strength of Facebook is fair. This is the debt and cash of Facebook over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Facebook has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $94.4 billion and earnings of $11.69 a share. Its operating margin is 40.42%, which ranks better than 94% of the companies in Interactive Media industry. Overall, the profitability of Facebook is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Facebook over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Facebook is 29.4%, which ranks better than 79% of the companies in Interactive Media industry. The 3-year average EBITDA growth is 19.6%, which ranks in the middle range of the companies in Interactive Media industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Facebook’s ROIC was 41.05, while its WACC came in at 9.21. The historical ROIC vs WACC comparison of Facebook is shown below:
Overall, the stock of Facebook (NAS:FB, 30-year Financials) appears to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Interactive Media industry. To learn more about Facebook stock, you can check out its 30-year Financials here.
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