Facebook’s stock is estimated at
Facebook’s stock (NAS: FB, 30-year-old Financials) is estimated at fair value, as calculated by GuruFocus Value. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, past business growth, and analysts’ estimates of future business performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 345.65 per share and market cap of $ 980.1 billion, Facebook stock is showing all signs of a fair valuation. The GF value for Facebook is shown in the table below.
Given that Facebook is fairly valued, the long-term return on its stock is likely to be close to the growth rate of its business, which has averaged 29.4% over the past three years and is expected to grow by 21.4%. , 25% per year over the next three to five years.
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It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Examining the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. Facebook has a cash-to-debt ratio of 5.53, which is around the average for companies in the interactive media industry. Facebook’s overall financial strength is 7 out of 10, indicating that Facebook’s financial strength is fair. Here is Facebook’s debt and cash flow over the past few years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. Facebook has been profitable 10 in the past 10 years. In the past twelve months, the company achieved sales of $ 94.4 billion and earnings of $ 11.69 per share. Its operating margin is 40.42%, which ranks better than 94% of companies in the interactive media industry. Overall, Facebook’s profitability is ranked 9 out of 10, indicating strong profitability. Here is Facebook’s revenue and net income for the past few years:
One of the most important factors in the valuation of a business is growth. Long-term equity performance is closely linked to growth, according to GuruFocus research. Companies that grow faster create more shareholder value, especially if that growth is profitable. Facebook’s average annual revenue growth is 29.4%, which ranks better than 79% of companies in the interactive media industry. The 3-year average EBITDA growth is 19.6%, which ranks among the average for companies in the interactive media industry.
Another way to assess a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures the extent to which a business generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company should pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating shareholder value. Over the past 12 months, Facebook’s ROIC was 41.05, while its WACC was 9.21. Facebook’s historical ROIC vs WACC comparison is shown below:
Overall, the Facebook stock (NAS: FB, 30-year-old Financials) appears to be quite valued. The company’s financial position is fair and its profitability is solid. Its growth is in the mid-range of companies in the interactive media industry. To learn more about the Facebook share, you can view its 30-year financial data here.
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