(C) Reuters. FB Stock: The Real Winner in the Age of Social Media
Facebook (NASDAQ:FB) stock has been on a remarkable run since its public debut in 2012. Showing dominance in the online advertising space, shares of the company have surged more than 850% over this time frame. Alphabet’s Google (NASDAQ:GOOGL), combined with Facebook, make for a veritable duopoly in the U.S. online advertising space.
There’s reason for Facebook’s relatively quick ascent to this level. Social networking continues to become more ingrained in the daily lives of so many globally. Currently, it’s estimated that more than 80% of online users are social media users. Indeed, Facebook has as many as 2.9 billion million monthly active users on its platform.
However, over the last few years, Facebook has seen a series of headwinds unfold. There was the old Cambridge Analytica scandal, which was related to the 2016 election, that most folks have forgotten about. Then there have been a series of regulatory probes into Facebook’s monopoly-like nature.
Additionally, more recently, Facebook has come under criticism by regulators over what many see as damning whistleblower testimony on how Facebook chooses profitability over the safety of its users.
Indeed, these are enough headwinds to make investors’ heads spin. However, FB stock has been incredibly resilient over the years.
Here’s why I remain bullish on FB stock in light of the recent bearish sentiment that’s been building around this stock. (See Facebook stock charts on TipRanks)
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As the most recent entrant into the exclusive $1 trillion market cap club (it’s currently been demoted to a market cap of “only” $930 billion at the time of writing, but who’s counting), FB stock has seen impressive investor buying of late. Indeed, as one of the stocks leading the way in the market’s rebound from pandemic lows, Facebook remains one of the largest holdings across various index funds and ETFs.
That said, there’s reason to believe Facebook’s valuation is among the best of its peer group.
FB stock currently trades at a price/earnings multiple under 25. To put that in perspective, the price-earnings ratio of the NASDAQ currently sits just shy of 30. Accordingly, on a fundamentals basis, this stock is cheap.
Indeed, given how high valuations have flown for other mega-cap stocks, it’s incredible to see such a high-quality company trade at this multiple. Facebook’s top and bottom lines continue to grow rapidly, making the company’s PEG ratio among the lowest of its peer group.
To put Facebook’s valuation in perspective, high-flying Tesla (NASDAQ:TSLA) currently carries a price-earnings ratio of 415, Amazon’s (NASDAQ:AMZN) sits at 57, Netflix (NASDAQ:NFLX) is at 66, and even Apple (NASDAQ:AAPL) is at 28.
Looking at Facebook’s valuation, it’s clear that investors are starting to look at this stock as a mature one. Facebook’s valuation has remained under 35 for quite some time, arguably discounting this mega-cap company’s growth.
However, for long-term growth investors, this could mean very attractive upside, should Facebook continue to deliver on its promises.
Facebook’s ability to grow through the pandemic and continue to lead the way in innovation in the online advertising space is notable. This is a company with a very sticky and loyal customer base, and a range of other platforms which are growing exceedingly fast within Facebook’s portfolio.
Accordingly, from a purely numbers standpoint, long-term investors have reason to like FB stock right now.
What Are Analysts Saying About FB Stock?
As per TipRanks’ analyst rating consensus, FB is a Strong Buy. Out of 31 analyst ratings, there are 25 Buy recommendations, 5 Hold recommendations, and 1 Sell recommendation.
This stock has an average Facebook price target of $419.87, implying an upside of 27.2%. Analyst price targets range from a high of $500 per share to a low of $300 per share.
It is evident that FB stock offers investors impressive long-term growth potential at what appears to be a discounted price relative to its peers. However, how the company manages its various scandals in this heightened regulatory environment remains to be seen.
Accordingly, over the near-term, it’s feasible to see some sort of valuation discount prevail. However, over the longer-term, this is a company that’s just growing too fast to stay this cheap for much longer.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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