Earlier this week, Facebook (FB) closed its $21.8 billion purchase of WhatsApp, a rapidly growing mobile messaging system. The next day, Facebook revealed plans for an experimental app that allows users to be anonymous. The social network firm always has something new in the works.
So, with just days left until its Q3 earnings report, let’s see if it still makes sense to “like” FB stock.
Company Overview
We’ve all heard of Facebook — the social networking website with 1.23 billion monthly active users around the world. Facebook was founded in 2004 by former Harvard University student Mark Zuckerberg. After the site experienced a meteoric rise in popularity over the next eight years, Facebook went public in Feb. 2012.
While FB stock has had its ups and downs since then, it appears that FB stock has found its footing. With $7.87 billion in sales brought in last year, Facebook employs 6,818 worldwide.
Earnings Preview
Facebook is scheduled to report Q3 results after the closing bell on Tuesday, Oct. 28, and it’s shaping up to be a strong report. Analysts are calling for 40 cents earnings-per-share on $3.11 billion in revenue, which translates to 54% annual sales growth and 60% earnings growth year over year.
To put things into context, the industry as a whole is expected to see earnings fall 5.8% year over year, and this outperformance is expected to last for the next several quarters: Facebook is headed for 84.1% bottom-line growth this year (compared with the 11.6% industry average). For its upcoming report, Facebook has a history of double-digit earnings surprises, and I expect it to trounce analyst estimates this time around.
Current Ratings
FB stock has held steady at a “buy” for the past year thanks to strong fundamental health and institutional buying pressure. Out of the eight financial metrics I graded FB on, it received “As” on five: Sales growth, operating margin growth, earnings growth, earnings surprises and analyst earnings revisions.
Facebook also earned a “B” on return on equity. The only two fundamental areas Facebook needs to improve are earnings momentum (F) and cash flow (C). So, FB earns a “B” for its overall Fundamental Grade. Meanwhile, buying pressure is very strong, as shown by FB stock’s “A-rated” Quantitative Grade.
As of this posting, October 9, 2014, I consider FB an “A-rated strong buy.”
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Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
