Facebook Inc (NASDAQ:FB) reported astounding earnings and revenue numbers for its third quarter. Then, FB stock promptly sold off by 5%.
What gives?
Facebook blew away estimates, but then it did the unthinkable. It announced that its fourth quarter might not be as impressive as last year’s Q4.
That was it. The market simply panicked and sold out of Facebook stock.
By the way, Facebook didn’t say it was going to have a bad quarter. It didn’t even say that its fourth quarter wasn’t going to be as good as last year’s. It just said the year-over-year comparisons wouldn’t be as impressive. It’s amazing how the market reacts to such a statement.
That’s why FB stock looks like a buy right now. Because everyone else is just panicking.
Wall Street’s Brain Is Broken
Somehow, all the brilliant minds on Wall Street can’t seem to get their minds around the fact companies cannot expand their markets geometrically for eternity.
They also don’t seem to grasp the fact that slowing growth can still be impressive growth, as long as there are other markets and technologies opening up current revenue streams that can continue growth in a different form.
This binary logic – more is better, less is worst – only works for big traders, not individual investors. The institutional traders can pile in and then bail out scores of times in a matter of hours. You can’t.
That means you need to look at the fundamentals of the company, then at its history and judge all that against its current momentum.
With Facebook, it’s pretty clear that whatever discount traders are factoring into FB stock will end up a better price to buy.
So let’s run the current numbers just so you have an idea of the stunning growth Facebook has under its belt in the last quarter, and perhaps you’ll see why less spectacular numbers aren’t a death knell for this social media juggernaut.
Why FB Stock Looks So Good
Third-quarter revenue went from $4.5 billion last year to $7 billion this year – a 56% change. Net income went from $896 million to $2.4 billion — an increase of a whopping 166%.
Remember, FB has a market cap of $341 billion; this isn’t a little biotech or hot chip stock. Do you know of any other companies this size that are putting in earnings and revenues like this? Ask Exxon Mobil Corporation (NYSE:XOM) or Microsoft Corporation (NASDAQ:MSFT) if they’ll be on par with Facebook anytime soon. Apple Inc. (NASDAQ:AAPL) must be green with envy.
Operating margins we also up significantly, as was GAAP and non-GAAP earnings per share.
Add to all this, the fact that monthly and daily active users were also up by double digits. Monthly active users was up 16% to 1.8 billion; daily active users was up 17% to 1.2 billion.
That FB can’t continue this kind of outsize growth isn’t a cause for concern. It’s common sense. And it’s certainly not a reason to sell the stock for long-term investors. This is a blip; a trading strategy for institutional investors.
Don’t be fooled.
Facebook stock is down slightly, and I think that makes it a good time to buy. There’s no reason why FB should continue to sell off. At worst, it might consolidate here until after Q4 is over.
Whichever it is, don’t miss this opportunity to pick up FB stock at a discount.
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.
