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Wasting an Opportunity

Stock (Symbol) Stock Price

Facebook (FB)

$81

Data is as of Expected to Report Sector

April 29, 2015

Jul 21 – Jul 27

Technology

Sharek’s Take
David SharekFacebook’s wasting an opportunity to post substantial profit growth because management wants to spend money to keep the site on the cutting edge of technology. Profit growth slowed to 24% last qtr even though sales surged 42%. Recently acquired Instragram and WhatsApp are extremely popular, continue to evolve, and are two powerful allies in FB’s fight to stay on top. With a P/E of 41 the stock is right where it should be, and I don’t anticipate it moving higher until Q4 as 2015’s profits are expected to rise just 12% even though sales could jump 36%. This is a great long-term stock but investors who are trying to make money now might want to look elsewhere at this time.
One-Year Chart
FB_2015_Q2Profit growth slipped from 74% 2QtrsAgo to 24% last qtr. Estimates show teen growth ahead but my guess is FB can deliver 20%-25% growth. Notice the stock went from climbing to basing in the $70s, then broke out and was unable to move higher.
Earnings Table
FB_2015_Q2_EPSAs mentioned earlier, profit growth was 24% on a 42% rise in sales.

FB beat the street by just 2 cents, which is the lowest its beaten by in two years.
 
Annual Profit Estimates grew slightly, but are around what they were 4QtrsAgo. Top-tier growth stocks have annual estimates which are increasing — this stock isn’t top-tier right now.
 
Qtrly profit shows teens growth the rest of the year. I think FB could do 20% to 25% growth each qtr.
Fair Value
FB_2015_Q2_PHFacebook is worth 40 times earnings, and with a P/E of 41 its right where it should be. I caution investors not to sell because there’s good growth expected next year — but management could cut guidance as that gets closer as it did late in 2014.
Ten-Year Chart
FB_2015_Q2_10yrNice rise for the stock in 2013. Now its a slower-growth period. Stinks that the stock’s not ascending like it did, what a wasted opportunity.
Power Ranking Bottom Line
Growth Portfolio

11 of 22

Facebook is treading water this year as it spends too much money. Hopefully profit growth will accelerate in 2015. Still, this is a must own franchise for diversified growth stock accounts as it has fantastic long-term appreciation potential.
 
FB is ranked 11th in the 22 stock Growth Portfolio
 Power Rankings. I sold it from the Aggressive Growth Portfolio earlier this year as the stock’s not timely.

Aggressive Growth Portfolio

N/A

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