More emails are coming in on Facebook Stock and questions as well as comments. I suppose the biggest question being asked is the valuation of Facebook Stock itself. As I have indicated in my previous posts on Facebook Stock, I do not believe it is Stock Investment grade. In other words there remains too many unknowns at this point. I see no problem with Trading Option strategies against the stock itself, but valuations are all over the map, so to speak.
Marketwatch Facebook Stock Article
A new article at Marketwatch by Mark Hulbert. You can read it through this Facebook Stock Link. According to Hulbert’s calculations Facebook Stock value is probably around $13.80. That price falls into line with my Facebook Stock article from yesterday.
But valuations of stocks is tough for anyone including the most experience analyst. There are many stocks that have valuations that do not make sense to many of us.
Amazon Stock – Is It Fairly Valued?
Amazon Stock for example has increasingly outrageous valuations. It is now trading at 269.1X earnings. Total book value is a paltry $17.05 and earnings just .82 cents. This is unbelievable and yet investors pushed the stock higher by 7% again today.
When I last looked at Amazon Stock in an article (this Amazon Stock link will take you to the article) it was trading at a ridiculous PE of 103.8 times, a cash flow of $3.95 per share and earnings of $2.27.
Below are Amazon Stock Technicals.
Amazon Stock Fundamentals show increasingly out of reality numbers. Yet the stock is up another 7% today. How can Facebook Stock is valued differently?
What Gives At Amazon Stock?
Amazon. com is not a small company. It has more than 60,000 employees and tons of inventory to both pay for and maintain. It is a far cry from a company like Facebook which has dedicated users and yet cost is minimal in relation to a company like Amazon.com.
Not only is EPS growth at Amazon Stock below the industry average, it is declining. Investors seem to believe that Amazon.com has strong future prospects but it is hard to find any analyst that rates Amazon Stock a sell. The ROE on Amazon shows a profit margin of 0.60% which is way below the industry average. Worse, Amazon.com is losing market share and seems unable to grow revenues. Standards and Poor’s in their report of July 21 rated it a hold and project an upside target of $240.00 indicating that Amazon.com “continued to demonstrate the strength and worldwide potential of its business model”. They project that the shares are actually trading at 80 times their 2013 projected earnings.
Here are some other articles on Amazon Stock you might find helpful
Put Selling Amazon Stock and Never Owning Shares
Amazon Stock Versus Apple Stock
So What About Facebook Stock?
If Amazon Stock can trade at such a high multiple, why rate Facebook Stock, which is actually making money and continues to grow, with a very low multiple. Meanwhile Standards and Poor’s rates Facebook Stock a hold and has an upside target of $27.00. In their report they say, “We think Facebook has considerable competitive advantages in the social media segment, associated with its global brand, substantial user base, high levels of engagement and considerable access to valuable user data and information. However we wonder about the effectiveness of Facebook’s advertising platforms and offerings, the margins on marketing messages on mobile platforms and risks related to access to and use of sensitive personal details. ”
It’s tough to place a valuation on Facebook Stock other than to say that it is priced at whatever investors feel they are willing to pay, and this is why I believe the best choice is Trading Options against Facebook Stock.
Advantage Goes to Trading Options on Facebook Stock
Trading options through a variety of strategies provides protection and profit. It allows investors to benefit from the high volatility with less capital than holding Facebook Stock. While Facebook Stock is down 50% from its $45.00 high, I am now up 22% after today’s options expired. All of this income was made through a simple strategy of timing Put Selling through the use of my Shark Options Trading Strategy. The biggest advantage has to be that even if I get the direction of Facebook Stock wrong, I am still profiting through Trading Options.