Financial services news wire CNBC recently reported that, Aswath Damodaran, a New York University Stern Business School “professor of valuation” believes Facebook Inc. stock is good value under $180, with the stock closing at a US$171.16 overnight.
Professor Damodaran pointed to the fact that user numbers are still going up despite one of the “worst quarters” for PR a company could possibly have on the back of the Cambridge Analytica privacy scandal.
As a result some analysts and sceptics are concerned that user growth at Facebook will reverse in its key developed markets, with what users that remain spending less time on the social media platform.
Facebook also revealed falling profit margins for its quarter ended June 30, 2018 and warned investors to expect revenue growth to significantly slow in the quarters ahead, while it continues to invest in the necessary head count to counter problems associated with “fake news” and user privacy breaches.
As a result of the bad headlines, Facebook stock now trades on 24.5x annualised earnings per share of US$6.74, which looks good value in my opinion given its competitive position and underlying growth rates.
What’s more is that its photo sharing platform Instagram could get close to being as big as the Facebook platform one day, which means there’s still plenty of growth in the tank for Facebook yet.
Throw in the potential of WhatsApp, Messenger, marketplace andVR, among others, and it’s evident that Facebook still has a big future. Of course there are risks including slowing advertising revenues on the back of falling user numbers, but that’s one risk I feel is adequately compensated for in the existing valuation at US$171.16 per share.
Notably the professor of valuation also told CNBC that the Amazon Inc valuation “terrifies” him, but that investors should not bet against it. Sensible advice given Amazon stock has climbed 10 fold over just the past six years to hit a record high of US$2,050 overnight.
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Motley Fool contributor Tom Richardson owns shares of Amazon and Facebook.
You can find Tom on Twitter @tommyr345
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Facebook. The Motley Fool Australia has recommended Amazon and Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.