Facebook, Inc. (NASDAQ: FB) – Is Facebook stock overvalued or undervalued?
Facebook, Inc (NASDAQ: FB) stocks topped the S&P 500 in 2021, generating a cumulative total return of 24.5%.
Facebook continues to show impressive growth figures. But with a market cap of $ 977 billion, some investors are wondering if there is any value left in Facebook shares.
Earnings: A price-to-earnings (PE) ratio is one of the most basic fundamental measures to assess the value of a stock. The lower the PE, the higher the value. For comparison, the S&P 500 PE is currently around 33.9, more than double its long-term average of 15.9.
Facebook’s PE is currently 26.2. This number is lower than the average for the S&P 500 as a whole. It is also down 56.3% over the past five years, suggesting that its earnings multiple is at the low end of its all-time range.
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Growth: Looking ahead to the next four quarters, the S&P 500 futures PE ratio looks much more reasonable at just 20.7. Facebook’s forward earnings multiple of 21.9 is only slightly higher than that of the S&P 500 as a whole, so Facebook stocks look fairly valued.
Facebook’s forward earnings multiple is exactly in line with its consumer discretionary peers, which on average have a forward earnings multiple of 21.9.
However, when it comes to valuing a stock, profits aren’t everything.
Growth rate is also critical for businesses that build their bottom line quickly. The price / earnings / growth ratio (PEG) is a good way to incorporate growth rates into the valuation process. The overall PEG of the S&P 500 is currently around 1; Facebook’s PEG is 0.9, a very attractive valuation for a mega-cap tech stock.
The price-to-sales ratio is another important valuation metric, especially for unprofitable companies and growth stocks. The S&P 500’s SP ratio is currently 3.1, nearly double its long-term average of 1.62. Facebook’s PS ratio is 9.3, not exactly market value, but not a huge red flag for a growth stock.
Finally, Wall Street analysts are seeing impressive gains for Facebook stocks over the next 12 months. The average analyst price target among the 43 analysts covering Facebook is $ 425, suggesting a rise of about 25.3% from current levels.
The verdict: At its current price, Facebook stock appears to be somewhat undervalued based on a sample of common fundamental valuation metrics.
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