When studying Facebook (NASDAQ:FB) stock, it reminds me of a sports lesson from childhood—keep your eye on the ball. News events have drawn investor attention elsewhere as the media emphasizes other issues.
From privacy-related concerns to Libra, investors have focused on bad news. However, the “ball” of FB lies in its growth figures and valuation. As investors begin to look at where FB stock is truly going, they should turn their eyes to the numbers, not the news.
Facebook is in a league of its own. Like Josh Enomoto stated, Facebook’s 2.4 billion users make up around 31% of the world’s population. Only companies such as Coca-Cola (NYSE:KO) and McDonald’s (NYSE:MCD) can compare to such a worldwide reach.
Can Facebook Overcome Its Challenges?
But such a footprint also leaves one central question that has plagued Coca-Cola and McDonald’s before it—where does it grow from here? It has somewhat answered that question with other apps such as Instagram and WhatsApp. However, since both of these apps also have more than one billion users each, one has to wonder if they face the same growth limitation as the main FB site.
Another possible answer comes from Facebook’s proposed cryptocurrency, Libra. This has run into severe headwinds of late as companies such as Visa (NYSE:V), Mastercard (NYSE:MA), and PayPal (NASDAQ:PYPL) have withdrawn support.
I agree with Todd Shriber’s assertion that the fate of Libra will do little to alter the course of FB stock. Yes, the Federal Reserve has shown openness to applying the technology underpinning crypto. However, as Chris Lowe says, the bipartisan opposition indicates the government does not want the Fed to have competition.
Other concerns remain. FB still faces government scrutiny on both sides of the Atlantic regarding privacy concerns. It also has to contend with an antitrust probe and charges that Facebook became a tool in influencing the outcome of the last U.S. presidential election. Furthermore, the company and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) face an emerging competitor in Amazon (NASDAQ:AMZN) in its crucial online ad market.
FB Stock Positioned to Profit Investors
So where does FB stock go from here? If investors can get past the bad publicity, the simple answer is probably up.
It will probably rise for the simple reason that Libra, election tampering, privacy concerns, and the like are just noise. Facebook stock benefits from the roughly $48.6 billion the company holds in cash. For lack of a better way to put it, this will help them buy their way out of any potential fines. Moreover, like with Instagram and WhatsApp, it will also allow them to purchase any growth engine they cannot invent themselves.
The negative publicity for Facebook stock may also work in favor of bargain hunters. Wall Street predicts average earnings increases of 22.17% per year over the next five years. Moreover, the forward price-to-earnings (PE) ratio of 20 indicates that the multiple lags the growth rate. As more investors ignore the news and focus on results, they will likely begin to recognize FB stock for its actual performance rather than news-related perceptions.
The Bottom Line on Facebook Stock
When it comes to FB stock, do not focus on meaningless news, look instead at the numbers. Yes, most of the headlines about FB point to a negative direction for the company. At first glance, it looks like it has little growth room left as it soon gets buried by government detractors.
However, the growth numbers tell a different story. With a long-term average earnings growth rate exceeding 22%, FB stock will likely head higher over time. Moreover, with a forward PE of about 20, investors can buy this growth at a relatively low price.
Now, as the investor, the ball is in your court. For those who can keep their eyes on that ball, FB stock should make for a profitable long-term investment.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.