When it comes to stocks, I play favorites. And if you read my work, you know full well that Facebook Inc (NASDAQ:FB) stock has been my favorite stock for a long, long time. Despite a 50% year-to-date rally and a 700%-plus gain over the past 5 years, Facebook stock is still my favorite. And it will likely remains so for the next several years.
Facebook stock is still the most attractively valued hyper-growth tech stock in the market. It has a robust, multidimensional growth narrative that isn’t showing any signs of slowing. The company essentially owns the mobile and social media spaces, two spaces which have been and will continue to be on fire. There are also so many levers the company can pull at any point to kick-start the next leg of super-charged growth. Think WhatsApp. Facebook Watch. Marketplace.
There is just far too much to like about the Facebook growth story to ignore the fact that Facebook stock is trading at a huge discount to its peers.
So what does that mean?
Buy Facebook stock and hold it for the next several years.
Facebook Stock Is Big Growth At A Big Discount
CNBC ran a feature story this weekend on how fashion designers leveraged technology to drive robust sales growth for their brand. The takeaway? The era of social selling is upon us. Brands are starting to use social media to not only drive brand awareness but actual sales conversions as well. Gone are the days of advertising on TV and in magazines. Here are the days of social media promotions.
Instagram is at the center of this revolution. According to Uri Minkoff (one of the fashion designers CNBC featured in their article):
“We use Twitter for new updates. We use Pinterest for our mood board, but Instagram has really become front and center.”
I have discussed this dynamic before. More and more, Millennials are discovering brands by scrolling through their Instagram feeds. This trend is only growing.
And its only one dimension of the entire Facebook stock growth story. Beyond Instagram, there is Messenger and WhatsApp, the social messaging platforms which have 1.2 billion users each and which are both just starting on their money-making paths. There is Facebook Watch, the social media giant’s streaming content efforts in an era when everyone is migrating to streaming video on demand. There is Marketplace, which gives Facebook a leg-up in capitalizing on the huge mobile commerce trend.
Best of all, it is trading at a big discount. Facebook stock trades at 26.6-times fiscal 2018 earnings estimates. Earnings growth over the next 5 years is expected to be about 26.6% per year. That means Facebook stock is trading at a price-to-earnings/growth (PEG) ratio of right around 1.
Nowhere else in the tech space will you find that low of a multiple for that big of growth.
Amazon.com, Inc. (NASDAQ:AMZN) trades at 120.3-times fiscal 2018 earnings estimates. Meanwhile, annualized earnings growth over the next 5 years is pegged at 38.6%. That gives AMZN stock a PEG of about 3.1.
NVIDIA Corporation (NASDAQ:NVDA) trades at 42.9-times fiscal 2018 earnings estimates while earnings growth over the next 5 years is expected to be 12.9%. That gives NVDA stock a PEG of about 3.3.
Alphabet Inc (NASDAQ:GOOG) trades at 23.3-times fiscal 2018 earnings estimates. The 5-year forward earnings growth rate sits at 19.1%. That gives GOOG stock a PEG of about 1.2.
Netflix, Inc. (NASDAQ:NFLX) trades at 90.8-times fiscal 2018 earnings estimates for a 5-year forward annualized earnings growth rate of 77.5%. That means NFLX stock also has a PEG of about 1.2.
Apple Inc. (NASDAQ:AAPL) trades around 14.6-times fiscal 2018 earnings estimates. Earnings growth over the next 5 years is expected to be 11.3%. That is a PEG of about 1.3.
Bottom Line on Facebook stock
Every other relevant big tech name with nice growth prospects trades at a premium to its growth potential.
But not Facebook. It trades in-line with its growth potential.
And I like a lot of the other big tech names. AMZN is a retail giant that runs the market’s biggest cloud business as a side gig. NVDA is an all-things-artificial intelligence company with exposure to every secular growth market. GOOG’s Youtube business is one of the most exciting businesses in all of tech. NFLX is dominating the streaming video on demand space more than ever before.
I just like Facebook that much more.
Its my favorite stock for the next 5 years because its a big growth story at a big discount.
As of this writing, Luke Lango was long FB, AMZN, NFLX, NVDA, and GOOG.
