Loss By Submission: I Am Buying Facebook

Summary

  • Fast-forward a few quarters of skepticism since I started covering the company, I am a FB shareholder at last.
  • In this article, I take the reader through a brief journey that led me to buy shares earlier this month.
  • I believe my move to get into the stock was the right one, even if the entry price today is less appealing than it was last year.

I have never been a Facebook (FB) bear. But I have always been a Facebook skeptic. For well over a year, I have argued that the company's stock seemed priced for perfection. I often passed on the opportunity to buy shares, choosing not to get involved with the social media giant for fears of a painful pullback that I believed would happen once growth in Menlo Park started to slow down. Now, fast-forward a few quarters since I started covering the company, and I am a FB shareholder at last.

How did I arrive at my decision to buy the stock now, after so many months of reluctance and following a 12-month stock price run of nearly +50%? To answer that question, I need to take the reader through a brief journey.

Credit: image from BJJ Fanatics and logos by Facebook and DMMR

Love and hate: my Facebook story

In the early part of 2016, when FB traded just north of $100/share, I issued a cautious statement about how much scale and growth had been priced into the stock at that point. Back then, I calculated that the company would need to produce $10 in EPS in a steady, mature state for me to justify buying shares at those levels. And although I appreciated Facebook for the dominant name that it was in social media, I just could not make the math work.

The company responded to my skepticism by maintaining growth momentum for longer than I expected and improving margins quarter after quarter. The results were manifested in eight straight quarters of all-around earnings beats since the publishing of my first FB article. During the period, revenues grew at no less than +45% each quarter, and annualized earnings rose at an even faster pace (see five-year chart below).

ChartFB

This article was written by

DM Martins Research profile picture
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Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Disclosure: I am/we are long AAPL, GOOG, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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