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Facebook FB has been in the news for all the wrong reasons for some time now, but its data scandal might have actually helped investors looking to buy the social media giant’s stock at a more attractive valuation.
Recent Price Movement
Shares of Facebook tumbled from $185 per share in mid-March to $152 near the end of March as speculation about Facebook's handling of user data reached a fever pitch. This eventually forced founder and CEO Mark Zuckerberg to testify in front of members of Congress on April 10 and 11 to address Facebook’s Cambridge Analytica scandal.
Say what you will about the two days in Washington and if anything was learned, much less changed. But investors clearly didn’t hear anything too scary because Facebook stock has recovered nearly all of its losses since Zuckerberg spoke. In fact, the stock, which closed at $166 per share on April 11, has surged 10% to finish Tuesday at $184.32 per share.
Facebook stock is still up 23% over the last year, which outpaces the S&P 500’s 15% climb. Going even further back, FB stock has skyrocketed 126% during the last three years, while the index gained just 27%. The company’s climb also looks outstanding compared to the “Internet – Services” industry’s 44% three-year surge. This industry includes the likes of Google parent Alphabet GOOGL, Baidu BIDU, Dropbox DBX, and many more.
With all that said, Facebook stock has also traded at a discount compared to its industry’s average for a while. Over the last two years, Facebook stock has traded at a median of 28.4X forward 12-months earnings estimates. Meanwhile, the “Internet – Services” industry traded at 35.7X during this period.
Coming into Wednesday, Facebook stock was trading at 22.2X. Over the last year, Facebook stock has traded as high as 31.5X, which it hit in early January. FB also traded as low as 19.9X near the end of March after its stock price plummeted. For reference, the S&P 500 is currently trading at 16.6X, but most companies in the index lack Facebook’s stellar gains and growth projections.
Facebook stock is currently trading at a roughly 40% discount to where it stood two years ago. Investors should also note that FB stock is trading at more than a 29% discount to its early January P/E - F12M. Therefore, it is hardly a stretch to say that Facebook’s current valuation appears to be rather attractive, especially considering its massive growth prospects.
Some investors might be worried that Facebook’s top and bottom lines could be adversely impacted by the company’s user data issues, the idea being that advertisers and users will leave the platform. This, however, doesn’t seem to be the case. Publicis Media—part of one of the world’s biggest advertising groups—CEO Steve King recently told CNBC that he hasn’t seen advertisers pause their use of Facebook.
Meanwhile, Facebook closed the first quarter with 2.20 billion monthly active users, up 13% from the year-ago period. The social media company’s daily active user base also climbed 13% to reach 1.45 billion. This insane user base helped Facebook pull in $11.97 billion in Q1 revenue, which marked a 49% surge.
Looking ahead to the full-year, Facebook revenues are projected to soar by 40.6% to touch $57.14 billion, based on our current Zacks Consensus Estimate. Lastly, Facebook’s adjusted full-year earnings are expected to climb by 24% to reach $7.64 per share.
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