Stock (Symbol)

Facebook (FB)

Stock Price

$119

Sector

Technology

Data is as of

June 7, 2016

Expected to Report

Jul 27 – Aug 1

Company Description

Facebook, Inc. is a social networking company. The Company is engaged in developing products that enables users to connect and share through mobile devices and personal computers. It offers various services focused on people, marketers and developers. It offers various platforms for people to share their opinions, ideas, photos and videos, and to engage in other activities. Its products include Facebook, Instagram, Messenger and WhatsApp. The Facebook mobile app and Website enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Its Messenger is a mobile-to-mobile messaging application available on iOS and Android phones. Instagram is a mobile application and Website that enables people to take photos or videos, and share them with friends and followers. WhatsApp Messenger is a cross-platform mobile messaging application and allows people to exchange messages on iOS, Android, BlackBerry, Windows Phone and Nokia devices. Source: Thomson Financial

Sharek’s Take

For the 2nd straight qtr Facebook was the company that delivered the best results of any growth stock out there. Analysts had expected a profit of $0.62 vs $0.42 last year, or 48% profit growth. Instead the social network(s) delivered $0.77 vs $0.42 = 83% growth. What’s even more impressive is around a year ago this estimate was $0.53, which would have been 26% growth and estimates ratcheted up each qtr leading up to the announcement. Furthermore, future profit estimates surged higher this qtr. 2017s figure went from $3.15 to $3.45, 2016’s from $4.13 to $4.57 and 2018’s from $5.52 to $6.04. Qtrly estimates are now 62%, 53%, 46% and 26%. Facebook fits the mold like a classic all-time growth stock does. It even has a low P/E of 33. The unfortunate thing is the stock is stuck in a trading range between $115 and $120. But in the long-run that’s good as the stock could break out big time and go on a catch-up run (where the stock catches up to where it should be). Even a modest multiple of 45x earnings gets FB a Fair Value of $160 this year and $206 next year. And honestly, these could continue to rise if FB keeps beating the street. Facebook had 15% user growth last qtr and is expanding its ad offerings with video ads, Instagram and WhatsApp. It now has 3 million advertisers, up from 2 million a year ago. Facebook continues to be my favorite stock — by a long shot — and is the largest holding in almost all client accounts.

One Year Chart

Accelerating profit growth each qtr — with last qtr being a blockbuster. Other than that 19% profit growth from last year everything is in green. I’m astonished this stock isn’t carrying a 45 P/E. Maybe its basing here and getting primed to make a move higher?

Fair Value

My Fair Values continue to rise with earnings estimates, and we have to look ahead and guestimate how much FB will really earn. 2018’s estimate just jumped from $5.52 to $6.04 so maybe $8 is possible? A 35 P/E on $8 would be a $280 stock in 2 years, but that’s a guess at this point.

Bottom Line

Facebook has stellar fundamentals and is being held in check because funds aren’t going into growth stocks. But that shall pass and soon investors will be clamoring for growth again. I feel when that happens FB will lead the charge. FB is my largest holding and is my #1 ranked stock in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.