Earlier this week, Facebook reported earnings that were better than expected, bringing in $2.1 billion in profits in two quarters. It was the first time the social media company has topped $2 billion in just three months, and only six months since crossing the $1 billion mark in a quarter for the first time. Revenue was up nearly 60%, at a time when the economy in general in growing at less than 2%.
And yet, shares of Facebook (FB) shortly after the earnings were up only 3.5% to just over $127. By the end of the week, the stock has slumped back to under $124, roughly $0.50 more than where the stock was before the earnings announcement.
Part of the problem could be that investors are worried that Facebook’s growth is sure to slow. The social network already has 1.7 billion users. But a bigger problem could be the company’s stock price. The shares had already hit an all-time high. And as the WSJ noted, among tech giants Facebook has been the fastest to race to $350 billion, suggesting the shares could be overvalued.
But a comparison of Facebook’s price-to-earnings ratio to P/Es of other tech giants at their primes suggests that the shares of the social network could have more to rise.
It’s not too late to like Facebook’s shares.