I was really down on Facebook (FB) when it first came public. Then last quarter I thought the stock was worth $10 a share (20 times the $0.50 estimate). Now I’m warming up to FB a bit, but its still not a great investment.
One Year Chart
The media was all-about Facebook after the company announced profits that beat the street last quarter. The stock jumped from $20 to $23 the next day. When I look at the numbers I see FB only beat by a penny and profit growth was a measly 9%. Revenue was up 32%. With that much sales growth, profits should have been up 30% — at least! But that’s Facebook for you — just like Google — management runs the business how it wishes.
The best thing about this chart is profit growth is set to accelerate next quarter. I feel this will bring even bigger headlines — and I’m taking my P/E ratio up from 20 to 30 to account for this.
The P/E in this chart is calculated using 2013 earnings. Note the stock is basing here between $18 and $24.
Fair Value
With the new P/E of 30 (up 50% from the 20 P/E I gave it last quarter) FB stock is around where it should be. From the looks of this Fair Value table, FB should continue to trade in the $18 to $24 range.
Sharek’s Take
Facebook got rave reviews for having good mobile ad sales last quarter, but the bottom line (profits) only rose 9%. The compamny only beat by a penny and estimates didn’t really increase (see the Earnings Table below). I think the positive news was media driven.
The good news is profit growth is set to accelerate next quarter — and that could be a plus for these shares. 35% to 40% profit growth would grab headlines and could push this stock higher. A close over $25 would be a breakout. Still, I’m taking a more conservative view and think this business is worth around $20 a share, which is where the stock’s at now. I just don’fe feel this stock is worth 40 times earnings.
This is a good stock for traders — get in at $20 and get out at $23-24.
View the Earnings Table here.View the Ten Year Chart here.
