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Facebook’s Great Valuation: Right Time for FB Stock?

Facebook’s (FB) second-quarter earnings have comfortably propelled ahead of sales and revenue estimates. However, the stock dropped 3.6% in reaction to its Q2 earnings and sales. Moreover, the tech giant has provided guidance for the second half of the year, which indicates a slight deceleration of revenue. 

Shares of this tech stock have impressively outperformed S&P predictions this year. The stock of the company has soared 33% year-to-date. Facebook stock has registered considerable gains throughout the year so far. But as of now, shares of this growth stock are trading at a conservative valuation. Additionally, it has gotten a recent price target hike to $500. (See Facebook stock charts on TipRanks) This writer is bullish on Facebook stock.

So, is it a suitable time to dive into this growth stock? Let’s take a look.

Increased Price Target with Promising Growth and Earnings

The second-quarter report shows Facebook’s revenue jumping 56% to $29.1 billion with a massive 47% rise in ad prices. The shared profit stood at $3.61 per share, which is 56 cents higher than analyst estimates. 

Credit Suisse analyst Stephen Ju has moved his price target for Facebook to $500. The strong gains from ad pricing will serve to increase the company’s revenue further. Instagram reels, which are TikTok-like videos, will allow FB to propel its revenue growth in the following quarter. Facebook’s idea to boost advertising in various markets will help the company to register further gains.

Facebook Stock is on Sale

Facebook is one of the largest tech companies, with a massive market capitalization of $1.06 trillion. The company is poised to earn $14.08 for each share throughout the current year. Therefore, the stock would come with a P/E ratio of 27. 

If it hits the earnings per share projections, it will signify a 40% jump in EPS since 2020. On top of that, analysts believe FB can grow at a double-digit rate in 2022. With its current valuation, this doesn’t seem to be far-fetched.

Although FB stocks have a comparatively cheaper valuation, one should not forget the company’s versatility and its ability to innovate. The company has substantial cash flow, strong fundamentals, and an impressive balance sheet. Investors should consider Facebook’s strong acquisition skills and highly skilled management team.

FB Stock Could be Worth Buying

Facebook stock has recently moved higher, thereby making it less viable for investors to dive in at the moment. However, there are strong reasons to believe that it would be wise to invest in this tech stock now. 

One of the most compelling reasons is the cheap valuation of this tech stock. This stock trades at 27 times earnings. This comes at a time when the consensus analyst forecasts say earnings per share would jump 29% in the next 5 years. 

Facebook comes with a strong business momentum. This tech giant has clocked in revenue growth of 56% on a year-over-year basis in Q2. As per forecasts, company revenue growth will increase at a decent 37% in Q3 as opposed to the same period last year. 

Moreover, analysts believe FB might witness a robust sequential increase in its revenue for Q3 2021 due to the economic reopening.

What are Analysts Saying about FB Stock?

According to TipRanks’ analyst rating consensus, Facebook stocks are a Strong Buy. Out of 28 analyst ratings, there are 24 Buy and 4 Hold recommendations.

The average analyst Facebook price target is $424.89. The analyst price target ranges from a low of $381 for each share to a high of $500 per share. 

Bottom Line

Indeed, Facebook is a rapidly growing stock that seems to be attractive right now based on its current valuation and fundamentals. The stock might trade sideways or even fall during the near term. Yet the stock has the potential to trade at a premium valuation in the future.

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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