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Facebook Hits New Highs After Another Fantastic Quarter

Stock (Symbol)

Facebook (FB)

Stock Price

$125

Sector
Technology
Data is as of
August 15, 2016
Expected to Report
Nov 2 – 7
Company Description
facebook_hq_thumbs_upFacebook, 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
David SharekFacebook (FB) surged to an all-time high after posting profit growth that surged 94% and whipped the 62% estimate. Sales jumped 59%. Monthly active users increased 15% and mobile ads accounted for 84% of ad revenue. Some of the strong growth is due to ad load, which is the number of ads FB shows its users. More ads are in news feeds now, and although that’s boosting sales now, the company will inevitably have to slow this growth rate down. But then Instagram and WhatsApp will be catalysts for future growth. Facebook’s growth rate is phenomenal, yet the stock is still severely undervalued. This stock’s charts and tables look perfect, with “green” in every metric I follow including: P/E less than I think it should be, strong profit growth, beating the street every qtr, and increasing profit estimates. FB is expected to grow profits 68%, 57%, 35% and 26% the next 4 qtrs yet sells for 32x earnings. My Fair Value is 45x earnings which gives it a Fair Value of $177 this year and $226 next year. Plus, 2016 & 2017 profit estimates have increased 37% the past 4 qtrs, so these Fair Values might keep climbing. Facebook looks like one of the all-time best growth stocks, and is currently my largest holding.
One Year Chart
FB_2016_Q3Fantastic looking one-year chart with excellent profit growth and estimates. The 32 P/E is even less than the 35% Est LTG. What’s really good is FB keeps upping estimates after making more than it is expected to. FOr instance 2016’s profits were expected to be $2.86 four qtrs ago and are now $3.94. There’s still 2 qtrs left in the year, so the company could make $4.25 by the end of the year (vs $2.28 a year ago).
Fair Value
FB_2016_Q3_PHMe asking for the stock market to value FB at 45x earnings isn’t asking too much. The stock has had an average median P/E of 46 since it went public in 2012. This stock is really undervalued. 2017’s profit estimate has jumped from $3.76 to $5.03 the last 4 qtrs, and at that rate the company would make $7 when its all said and done. A 43 P/E on $7 in profits would mean a stock price past $300 a share next year. But this is highly hypothetical, don’t get your hopes up.
Bottom Line
FB_2016_Q3_10yrFacebook has stunning fundamentals that continue to look better and better. Digital ads on Facebook, Instagram and Whatsapp are so successful because companies are generating clicks and sales off them — so its a win/win. Welcome to the digital age! FB continues to be my largest holding and the #1 ranked stock in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
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