fbpx

Let’s Look at Facebook

Facebook (FB) reported earnings last week. Let’s update our info on FB and see what the stocks worth — and more importantly if its a good buy or not.

One Year Chart

FB_2013_Q1Profit growth clocked in at a solid 55% last quarter. Revenue grew 40%. I love the fact profits grew faster than sales. The estimated Long Term Growth Rate just increased from 26% to 29%.

One negative is 2013 profit estimates just got slashed from $0.64 to $0.58. That means profits are expected to climb only 9% this year. FB beat the street by 2 cents last quarter, which is good but not LinkedIn (LNKD) great.

What’s also not good is FB’s P/E is now 50. This company seems to be worth 30 to 40 times earnings, depending on the market’s mood towards the stock.

Fair Value

FB_2013_Q1_FVThe current market conditions are rewarding great growth franchises that don’t necessarily have great fundamentals. Google (GOOG) and Amazon (AMZN) are prime examples. Both have meh profit growth yet climb because sales are rising and the companies are great brands. Now you can put FB into that mix. FB has two big flaws — an estimated 9% profit growth this year and a high P/E 50 P/E — yet the stock is strong. With that being said I’m taking my FB Fair Value from 30 times earnings to 40 times earnings.

Sharek’s Take

I am adjusting my management style for owning growth stocks. I’m moving away from holding a concentrated portfolio of what I feel are the best values and moving towards a more diverse portfolio which will try to own all the best growth stocks. FB is one of these growth stocks, and is a must own whether you like it or not. But I don’t wish to over pay for stocks — that’s how you get hurt — and therefore feel FB is a stock to buy if it drops to around $23.

I’ll try to add FB to the Growth Portfolio and Aggressive Growth Portfolio if it dips to $23.

Leave a Comment

Your email address will not be published. Required fields are marked *

Not a member? Sign up here for $25 a month.