Time to Buy Facebook Stock…Or Wait it Out?
Facebook (NASDAQ:FB) has been trading on the Nasdaq (NASDAQ:QQQ) for less than a month, but has already caused a great deal of frustration and debate. Following a glitchy initial public offering, shares of the social-media company have been in a downward spiral, falling almost 30 percent since its IPO price of $38. The rapid decent has caused a debate on how Facebook is grossly overvalued, especially when compared to other tech names such as Apple Inc. (NASDAQ:AAPL) or Google Inc. (NASDAQ:GOOG). However, one firm points out that Facebook may actually be undervalued.
Bespoke Investment Group, a money management and research firm, recently compared Facebook’s forward price-to-earnings ratio of 46.92 to the stocks listed in the Russell 1,000. The index measures the performance of the large-cap segment of the U.S. equity universe and is a subset of the Russell 3000. The firm found that “there are 34 stocks in the Russell 1,000 that have a higher forward P/E (next 4 quarters) than Facebook right now, and quite a few of them are stocks that are loved by some of the same investors that are likely dumping on Facebook.”
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Popular names that currently have higher valuations than Facebook include Netflix Inc. (NASDAQ:NFLX), Salesforce.com Inc. (NYSE:CRM), and Amazon.com Inc. (NASDAQ:AMZN). Bespoke explains, “We don’t hear every day how much these stocks are overvalued, however, because they have been winners for investors.” As they say in the sports world, winning solves everything.
Listed below are the top five stocks that trade at a higher forward P/E ratio than Facebook:
EXCO Resources Inc. (NYSE:XCO): The oil and natural gas producer tops the list by trading at a forward P/E of 190.28.
SunPower Corp. (NASDAQ:SPWR): The company designs, manufactures and delivers solar panels and systems. Shares trade at a forward P/E of 154.06.
LinkedIn Corp. (NYSE:LNKD): The leader in professional social-networking with 161 million users, has a forward P/E of 120.10.
DDR Corp. (NYSE:DDR): The Ohio-based company operates as a real estate investment trust that manages a broad portfolio of retail shopping centers. Shares trade at a forward P/E of 107.85.
Host Hotels & Resorts Inc. (NYSE:HST): The company is also a publicly owned real estate investment trust, which primarily owns and operates hotel properties. The company trades at a P/E of 107.55.
Interestingly, if Facebook traded at the same forward P/E of LinkedIn, it would trade at $67 per share, more than double its current price. On Thursday, Facebook shares faded 1.16 percent lower trading at $26.50. Investors and analysts are still wary on the company’s ability to monetize its 900 million user base. However, shares received a boost as JMP Securities initiated coverage on Facebook with a Market Outperform rating and a price target of $37. “Valuation appears high but Facebook has plenty of opportunities to monetize its vast user base,” analyst Mark Harding wrote.
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