Sure, Facebook is growing faster. Second-quarter revenue was up 53% from the year-ago quarter compared to Google Inc (NASDAQ:GOOG)’s 20% increase in advertising revenue during the same period. But does Facebook really deserve to trade at a premium three times that of Google Inc (NASDAQ:GOOG)’s?
How to think about Facebook stock
So a DCF valuation says Facebook is a hold and a comparison to Google Inc (NASDAQ:GOOG) proves Facebook is expensive. What does all this mean for investors?
It simply means that Facebook is not a bargain. So I wouldn’t plan on loading up on the stock to the point that it amounts to a significant portion of my portfolio.
At the same time, there’s no denying that Zuckerberg & Co. are firing on all cylinders. Even more, as I’ve explained before, the company’s success in mobile combined with its powerful network effect together give Facebook enduring characteristics that might make the stock worth adding to your portfolio even if it is a hold — albeit as a smaller holding.
If the stock was clearly a sell by DCF valuation standards, I would probably avoid the stock entirely. But given Facebook Inc (NASDAQ:FB)’s enduring characteristics, I wouldn’t let fairly valued shares cause me to shun the stock entirely.
The article Facebook Stock Is Soaring. Is It Still a Buy? originally appeared on Fool.com and is written by Daniel Sparks.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google.
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