Have you heard of Facebook? If you haven’t, chances are that you’re living under a rock. After all, Facebook(NASDAQ:FB) is the world’s largest social network. Recently, the company announced that it saw 1 billion sign ins in a single day. So, if you take a brief look at the stock, it seems like one that’s likely to see long term growth. However, if you take a more detailed look at the stock, it’s easy to see why it’s not going to experience such heavy gains for much longer. Today, we’ll talk about why I’m starting to lose faith in Facebook’s stock and what you can do to take advantage of the trends.
Why Facebook Is Becoming Less Attractive For Investors
In my opinion, there are a couple of factors that are playing a role in Facebook’s loss of luster. Here they are…
Market Saturation – First and foremost, there’s no discounting the incredible feat that Facebook has accomplished. In a single day, 1 billion people signed into the social network. That’s one sign in for every seven people on earth! However, investors are looking for growth; and that’s something that Facebook may not be able to achieve for much longer. The reality is that Facebook is starting to become a victim of its own success. The company has saturated the market so heavily that it’s hard to expect exorbitant growth in user data moving forward; and since users generate revenue, this could eventually lead to a plateau in revenue. Unfortunately, a revenue plateau would do nothing good for the stock.
Valuation – Another key factor here is the company’s valuation. According to NASDAQ, Facebook is currently trading at 65.1 times earnings last year. The stock is also trading at 62.31 times what analysts are expecting to see in earnings this year and 43.62 times what analysts are expecting to see in earnings next year. This exorbitant valuation is something that we would expect to see on a heavy growth stock. However, with the market so saturated, it’s going to be hard to maintain heavy growth. Simply put, Facebook isn’t anywhere near worth what investors are currently paying for it.
Leave A Comment