Facebook Inc (NASDAQ:FB) may look expensive compared to the S&P 500, and it certainly wasn’t immune to the selloff in momentum stocks. However, when comparing it to LinkedIn Corp (NYSE:LNKD), Twitter Inc (NYSE:TWTR) and Yelp Inc (NYSE:YELP), some say it’s cheap. Writing on The Street, Bret Kenwell explained why he thinks it’s unwise to sell Facebook stock—bucking the trend among Facebook executives who have been rapidly unloading shares over the last few months.
Facebook by the numbers
Currently Facebook Inc (NASDAQ:FB) is trading at around a 74 price to earnings ratio. He notes that this isn’t cheap, but he doesn’t think it’s “too expensive.” Looking at 2014 projections, the social network trades at a multiple of around 40.5 times expected earnings. Once again, he notes that this is a pretty high valuation, although he also says that Facebook’s revenue is expected to grow 51%, while its earnings per share could grow as much as 65%.
The writer says that when comparing Facebook Inc (NASDAQ:FB) to other social media stocks, it starts to look extremely cheap. While Facebook’s multiple is 31.5 times 2015 estimated earnings, Yelp Inc (NYSE:YELP)’s is 172.5. Twitter Inc (NYSE:TWTR)’s multiple is 131, while LinkedIn Corp (NYSE:LNKD)’s is 59 times.
Facebook in 2015
Kenwell expects Facebook Inc (NASDAQ:FB) to continue smashing analyst estimates throughout next year. He says he doesn’t “put much faith” in estimates for next year, as the social network has beaten them by an average of 33% in each of the last four quarters. The write believes that, in general, Wall Street’s expectations for Facebook are simply too low.
He points to the price-to-earnings-growth ratio and notes that once again, Facebook Inc (NASDAQ:FB) looks cheap. The social network’s PEG ratio is .63 based on this year and .72 based on 2016. Any PEG ratio that is lower than one suggests that the stock is cheap. Interestingly enough though, Facebook’s PEG ratio for 2015 is 1.12.
He notes that analyst estimates suggest that Facebook Inc (NASDAQ:FB) is expected to grow by 28% in 2015 and then an additional 33% in 2016. However, that’s a significant decline from 65% this year. He questions why there’s a deceleration projected into 2015 growth estimates, and thus, he thinks Facebook is a buy.
