Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (60555)	3/20/2018 10:29:40 AM
From: Graham Osborn	Read Replies (1) \| Respond to of 78751

I ran it through my growth/ interest rate formula which gives a PE of 34 when you assume a 2% annual decline in the growth rate and a 1% addition to interest rates per year: PE > PE>2/(v_g/g_0 +v_r/r_0 ) ln((g_0/r_0))-1 =2/(0.02/1.5+0.01/1.03) ln((1.5/1.0))-1 That's obviously more conservative than citing a PEG-basis PE of 50 (based on a conversation over on COBAF I've given up on the PEG). However, there's something in my gut that rejects the math and won't let me pay 35 times earnings. They are still selling at about 10 times revenue and 10 times tangible book (I like tangible book for asset-light businesses). What if growth slows down meaningfully or profit margins decline? The top-line growth going forward depends primarily on increasing revenue per user, since user growth has somewhat limited upside at this point. If top-line growth falls at 3% rather than 2% suddenly you're looking at a PE of 26. I'll be perfectly honest and say I haven't conducted due diligence on Facebook at this point. So I don't know about the quality of earnings. What I have found in the past is that I got burned on growth plays where I focused on a single metric rather than requiring value on all of my core metrics. Facebook has been phenomenally profitable the past few years and I imagine it will be a great profit-generator for years to come - but I'm hesitant to extrapolate the current margins indefinitely. Meanwhile the metrics that seemed high a few years ago still seem very high. I agree though - it seems like a great business and I don't think it is selling at more than double intrinsic value. If this whole regulatory thing puts a meaningful dent in the price then I may well be a buyer in the next few years.