Facebook Inc (NASDAQ:FB) is one of those picks that’s a no-brainer. FB stock is up 240% since its 2012 initial public offering, almost four times the return of the S&P 500 in the same period, and Facebook continues to be the world leader in digital communication.
So why didn’t you just buy Facebook stock, dammit?
This is the question many investors keep asking themselves every time FB stock takes another leg up, as it has been doing lately; the $380 billion social media company is up about 5% in the past month vs. a flat S&P, and is up 25% year-to-date in 2016 vs. about 7% for the index.
If you’re waiting for a significant dip, friends, you won’t get it. Because Facebook is a force to be reckoned with and it’s much better to buy high and sell higher than wait for Mark Zuckerberg & Co. to stumble.
FB Stock Is “Cheap”
When you look at the market right now, it’s common to get a sense of vertigo about valuations. In tech, Amazon.com, Inc. (NASDAQ:AMZN) has a forward price-earnings ratio of 75, Netflix, Inc. (NASDAQ:NFLX) is trading for a forward P/E of over 100. And elsewhere, utility stocks and consumer staples names are trading at elevated P/Es around 20 thanks to the quest for lower volatility and higher yield.
In this context, a forward earnings multiple of about 25 for Facebook seems cheap — particularly after the impressive outperformance of FB stock.
And remember, it has long been a practice of investors to pay a premium for earnings in a high-growth stock. Considering Facebook earnings most recently saw revenue growth of 59% and net income growth of 186%, it’s hard to argue FB stock is anything but a growth name despite it’s already impressive scale.
The icing on the cake is that even amid all this growth, Facebook is keeping costs in check and expanding its margins and profitability. That is coming in part from smarter use of its existing social network with tweaks to the news feed or better integration of video, but also from newer efforts that include monetizing Instagram and making it a core part of the business after a $1 billion acquisition in 2012.
You simply can’t get this combination of growth, share appreciation and comparatively reasonable valuation in any other company.
Keep in mind that the current forward P/E ratio of the S&P 500 is 18.6 and the Nasdaq-100 is 20 — so FB stock isn’t that out of whack from current norms, even with its massive ramp.
If you’re waiting for Facebook to stumble, you’ll likely be waiting for a while. So just stop waiting and buy FB stock, dammit!
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
