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Here's Why Facebook (FB) Stock Is Actually Cheap Right Now

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Facebook (FB - Free Report) shares closed more than 1.2% higher on Wednesday, lifting the stock closer to the all-time high it reached before the early-February correction. The social media behemoth continues to be a popular option among investors looking for unique opportunities to scoop up shares of companies that are both dominating their industry and displaying exciting growth prospects.

Facebook 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 agencies placing at least some of the blame on the failure of internet platforms 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.

Despite all of this, Facebook’s fundamental position appears stronger than ever. In its most recent fiscal year, the internet firm saw revenue growth of 49%, while net income improved 56%. Meanwhile, the company’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 a “D” 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 near 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, and with the stock’s PEG of 0.95, investors are getting a solid price for the company’s expected bottom-line growth.

Still, it is even more important to compare Facebook its industry. This Zacks-defined group of similar companies looks at 50 internet stocks, including global giants like Alphabet (GOOGL - Free Report) and Baidu (BIDU - Free Report) . This group currently has an average Forward P/E of 31.5, 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.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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