- From technical point of view, Facebook is critically undervalued at the moment.
- The company is balanced in terms of its internal growth.
- FB is clearly undervalued relative to the main blue chips in Nasdaq.
Facebook (FB) shares fell 30% from their all-time high, and this is a good moment to review the company's fundamental state.
1. Technical parameters
I’d like to start with the analysis of the long-term trend of Facebook stock price.
The entire history of Facebook’s stock price growth is well-described by the exponential trend which appears as a straight line on the graph with a logarithmic y-axis:
The rolling annual total price return of Facebook's stock has dropped to the lower border of the standard deviation:
2. Growth drivers
The long-term relationship between the revenue TTM absolute size and Facebook's capitalization describes the company's current capitalization as clearly undervalued:
Speaking of the revenue, it should be noted that the current level of Facebook's capitalization, reflected by the P/S multiple, is balanced with the current pace of the revenue growth:
So, from the point of view of the established patterns, Facebook is undervalued in terms of the absolute values of the key financial indicators and balanced in terms of their growth rates. In other words, so far there is no clear undervaluation in this context.
3. Comparable valuation
At this section I would like to offer a comparable valuation of Facebook through historical-priced and forward-priced multiples. There are several models that deserve your attention.
First of all, let's consider the P/S (forward) multiple. In this case, the implied price is greater than the actual:
And, eventually, let's evaluate Facebook through such a fundamental multiple as P/BV:
So, we have to admit that now Facebook is clearly undervalued relative to the main blue chips in Nasdaq.
In my opinion, looking at the market in general, it is still difficult to say what is happening: a healthy correction or the beginning of a bear market. But, even if it’s a bear market, and we still have a long way to go down, the advantage of Facebook is that it is at least not overvalued like Apple or Microsoft. And relative to the main blue chips in Nasdaq, Facebook is even clearly undervalued.
It is also important to note that the COVID-19 epidemic makes people stay longer at home, and for Facebook it's a huge plus. Here is an interesting study on this topic.
In the current situation, it is difficult to be positive, but I still think that Facebook has already gone most of its way down.
This article was written by
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