Stock (Symbol) |
Facebook (FB) |
Stock Price |
$121 |
Sector |
| Technology |
Data is as of |
| November 7, 2016 |
Expected to Report |
| Jan 25 – 30 |
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 |
 Facebook (FB) grew sales 55% last qtr as profits rose 91%, and blew past the 68% estimate. In the conference call management stated it can’t keep growing that fast. No kidding. This is a big company with a $274 billion market cap. Still, profits are set to climb 28% next year and the company has beaten the street and upped estimates all year so that could prove to be conservative. Some of the strong sales growth can be attributed to ad load, which is the number of ads FB shows its users. The company had been adding ads into users news feed news feeds now, and that benefit will slow. But then on the other hand ads on Instagram and WhatsApp will be catalysts for future growth. Also, the company announced a $6 billion share buyback program which is around 2.5% of shares outstanding. Facebook continues to behave like one of the all-time best growth stocks, even if growth slows. Of course growth has to slow from the +90% level its been at the last 2 qtrs. What’s more is the stock now sells for an unheard of 23x earnings (2017 estimates). I feel the P/E should be 40 and my Fair Value on this $121 stock is $208 for 2017 and implies 72% upside from the current quote. My 2018 Fair Value is $262 and would be more than a double from here. |
One Year Chart |
 FB dipped after the Presidential election as money flowed towards Financial stocks with interest rates set to rise. Bank regulations could also be trimmed with Trump in office. Now FB is touching support around $120, and seems to be an absurd value. Facebook has had qtrly profit estimates upped in each of the last 4 qtrs, and then has beaten the street at the end. 2016 estimates have gone from $3.15 to $4.06 during the span, with 2017’s from $4.13 to $5.19. So could FB make $6 next year? If so then its selling for just 20x earnings. Qtrly profits are expected to climb 65%, 38%, 30% and 22% the next 4 qtrs. Those numbers have been growing so 40% profit growth for 2017 is achievable. |
Fair Value |
 I’m taking my Fair Value down from 45x earnings to 40x with slowing growth on everyone’s mind. Still, the upside from here is substantial. Again, the company could earn $6 next year and a 35 P/E on that figure would be $210. However I slice it, it seems like $200 is somewhere on the horizon. |
Bottom Line |
 Facebook has stunning fundamentals and even with growth slowing the stock has remarkable potential. Digital ads on Facebook, Instagram and Whatsapp are so successful because companies are generating clicks and sales off them — so its a win/win for everyone. The stock buyback could create support for the stock, and I feel this it also makes FB safer. With perfect fundamentals this stock ranks #1 in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. I will add it to the Conservative Growth Portfolio today and it will also rank 1st in that portfolio’s Power Rankings. |
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