Here's Why Facebook (FB) Stock Is Actually Cheap Right Now
Zacks Investment Research | Mar 02, 2018 04:20AM ET
Facebook (NASDAQ:FB) presents a unique opportunity for investors to scoop up shares of a company that is both a leader in its industry and an exciting growth prospect. The internet behemoth simply cannot be touched in the social media space, and despite rising costs and PR disasters, its stock continues to be one of the best options in the tech sector.
But the public’s picture of Facebook over the latest few months has not been a pretty one. Mark Zuckerberg’s company found itself right in the middle of national debate over fake news and Russian meddling in U.S. elections, with America’s top intelligence agency placing at least some of the blame on the failure of internet platform’s to properly vet content.
This headache brought some volatility to Facebook shares, especially after the company promised to spend more on security and hire new employees to focus on preventing abuse. Meanwhile, market-wide volatility has seen some of Wall Street’s top mega-cap tech companies shed value in recent weeks.
Despite all of this, Facebook’s fundamental position appears stronger than ever. The firm crushed the Zacks Consensus Estimate for earnings by 12% in the fourth quarter. Meanwhile, full-year revenue growth touched 49% and net income soared 56%. Management’s strong outlook inspired 17 positive revisions for FB’s fiscal 2018 estimates, and now the stock sports a Zacks Rank #2 (Buy).
Stocks with high Zacks Ranks are poised to outperform the broader market over the next one to three months, and Facebook certainly looks like a company that should be dominant for many years to come. But there is still more for investors to consider.
One might also notice that FB is currently sporting an “F” grade in the Value category of our Style Scores system, implying that the stock is trading at a premium to the market—and perhaps forcing traditional value investors to look elsewhere for a cheap internet stock.
However, a closer look at Facebook’s valuations reveals that the social media powerhouse is trading at its “cheapest” level in more than a year and could very well offer more value than other comparable internet stocks:
Facebook’s Forward P/E of 23.4 is near the lowest it has ever been. We might be able to peg some of this on the recent sell-off, but it is much more likely caused by Facebook’s strong earnings estimates for the next year. And with the stock’s PEG of 0.92, investors are getting a solid price for the company’s expected bottom-line growth.
Get The News You Want
Still, it is even more important to compare Facebook its peer group. This Zacks-defined group of similar companies looks at 50 internet stocks, including global giants like Alphabet (NASDAQ:GOOGL) and Baidu (NASDAQ:BIDU) . This group currently has an average Forward P/E of 30.5, meaning that Facebook is trading at a significant discount to its peers.
Finally, traditional value investors are buy-and-hold minded. Facebook is a company with an incredible track record, but its best days might still be ahead of it. Management knows that user growth will eventually plateau, and it has strategically invested in video content and artificial intelligence to prepare for a shifting business model.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Don’t Even Think About Buying Bitcoin Until You Read This
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks’ has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.