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Facebook Still Featuring Attractive Valuation

Facebook (FB) stock has witnessed a great upward move throughout the year, jumping almost 33% year-to-date. The recently released second-quarter earnings report shows the tech giant has surpassed analyst predictions in terms of sales and revenue. The company’s fundamentals look great, while growth prospects seem to be intact. 

I continue to be bullish on this stock, for various reasons.

After facing a series of regulatory threats regarding hate speech and fake news, Facebook is finally focusing on its core business of targeted advertising. According to its guidance report, Facebook expects to potentially witness reduced revenue growth in the next quarter.

That said, in spite of a massive 40% price run-up this year, Facebook stock is still trading with a fairly decent valuation. 

Let’s dive into the details to find out more about this stock. (See Facebook stock charts on TipRanks)

Facebook is Growing Unbelievably Fast

Investors were slowly losing confidence in FB towards the beginning of the year. Headwinds from the pandemic, recurring regulatory threats, uncertainty about the targeted advertising business, and slowing revenue growth per user were some of the major concerns.

However, over the past few months, the regulatory scrutiny died down, and revenue growth picked up. The company’s targeted advertising business began to perform decently due to reduced pandemic-related headwinds.

Notably, Facebook made 98% of its entire revenue from ads in the previous quarter. It displays these ads over numerous platforms like Messenger, Facebook, Instagram, WhatsApp and other third-party websites and apps.

It also generates a considerable amount of revenue through its Portal smart screens and Ocular VR headsets. 

The entire family of Facebook apps has served a total of 3.51 billion monthly active users in its previous quarter. Each user generated $8.31 in ARRP (average revenue per person). Facebook has seen a consistent rise in both monthly users and ARRP throughout the last year. 

The ARRP growth has been on a constant surge. Consequently, Facebook has been enjoying highly accelerated growth in terms of revenue and earnings since the previous two quarters.

Is Facebook Stock Worth Buying?

Facebook is one of the best tech stocks to dive into at this moment. There are quite a few positive aspects that make FB stock a great pick. 

The company comes with impressive business momentum. Facebook knows how to manage and hold its growth streak. Revenue growth has shot up 56% on a year-over-year basis in Q2. The company also expects to post decent revenue growth of 37% in the third quarter, as opposed to Q3 of 2020.

The company’s near-term expectations might be a little low, with Q3 revenue growth set to increase by only 1% as compared to Q2. However, it might be surprising to see a higher sequential revenue increase between Q2 and Q3 if the economy reopens entirely. 

Moreover, Facebook’s valuation is another major factor behind investor enthusiasm. Indeed, based on its peer group, Facebook is trading at a decently conservative valuation. Facebook stock is trading at about 24-times forward earnings at this time. This shows that FB stock is cheap as compared to its growth potential. Analysts believe the company’s earnings per share will jump 29% per year for the next 5 years.

Wall Street’s Take

As per TipRanks analyst rating consensus, Facebook stock is a Strong Buy. Out of 29 analyst ratings, there are 24 Buy recommendations, 4 Hold recommendations, and 1 Sell recommendation.

The average Facebook price target is $420.07. Analyst price targets range from a low of $300 per share to a high of $500 per share.

Bottom Line

Facebook is a rapidly-growing, profitable tech company that comes with superb growth potential, robust fundamentals and a massive market capitalization of $1.06 trillion. At Facebook’s current valuation, it can be a great pick for those looking for long-term growth in the tech sector. 

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.

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