Entering text into the input field will update the search result below

Facebook: A No-Go For The Value Investor

Oct. 26, 2014 5:15 AM ETMETA
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Some time has passed since the last time we looked at Facebook's (FB) valuation. Since then, both the share price and the intrinsic value have moved significantly higher as business continued its rapid expansion. At the moment, a conservative valuation of Facebook's business gives $32 of value per share while its share price nears $80.

A large valuation gap is absolutely normal for growth companies such as Facebook and refers to the value of prospective earnings, which may or may not be realized. The current share price of $80 implies that Facebook's earnings will stabilize at 2-2.5x its current earnings in the not-too-distant future. Facebook's business model may be capable of this growth, but there are many risks to this optimistic scenario. Should earnings stabilize at lower levels, major re-pricing is more than warranted.

Analyst's Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.