Market Overview

Here's Why Facebook Stock Is Actually Cheap Right Now


Facebook FB presents a unique opportunity for investors to scoop up shares of a company that is both a leader in its industry and an exciting growth prospect. The internet behemoth simply cannot be touched in the social media space, and despite rising costs and PR disasters, its stock continues to be one of the best options in the tech sector.

But the public's picture of Facebook over the latest few months has not been a pretty one. Mark Zuckerberg's company found itself right in the middle of national debate over fake news and Russian meddling in U.S. elections, with America's top intelligence agency placing at least some of the blame on the failure of internet platform's to properly vet content.

This headache brought some volatility to Facebook shares, especially after the company promised to spend more on security and hire new employees to focus on preventing abuse. Meanwhile, market-wide volatility has seen some of Wall Street's top mega-cap tech companies shed value in recent weeks.

Despite all of this, Facebook's fundamental position appears stronger than ever. The firm crushed the Zacks Consensus Estimate for earnings by 12% in the fourth quarter. Meanwhile, full-year revenue growth touched 49% and net income soared 56%. Management's strong outlook inspired 17 positive revisions for FB's fiscal 2018 estimates, and now the stock sports a Zacks Rank #2 (Buy).

Stocks with high Zacks Ranks are poised to outperform the broader market over the next one to three months, and Facebook certainly looks like a company that should be dominant for many years to come. But there is still more for investors to consider.

One might also notice that FB is currently sporting an "F" grade in the Value category of our Style Scores system, implying that the stock is trading at a premium to the market—and perhaps forcing traditional value investors to look elsewhere for a cheap internet stock.

However, a closer look at Facebook's valuations reveals that the social media powerhouse is trading at its "cheapest" level in more than a year and could very well offer more value than other comparable internet stocks:

Facebook's Forward P/E of 23.4 is near the lowest it has ever been. We might be able to peg some of this on the recent sell-off, but it is much more likely caused by Facebook's strong earnings estimates for the next year. And with the stock's PEG of 0.92, investors are getting a solid price for the company's expected bottom-line growth.

Still, it is even more important to compare Facebook its peer group. This Zacks-defined group of similar companies looks at 50 internet stocks, including global giants like Alphabet GOOGL and Baidu BIDU. This group currently has an average Forward P/E of 30.5, meaning that Facebook is trading at a significant discount to its peers.

Finally, traditional value investors are buy-and-hold minded. Facebook is a company with an incredible track record, but its best days might still be ahead of it. Management knows that user growth will eventually plateau, and it has strategically invested in video content and artificial intelligence to prepare for a shifting business model.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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