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

To: Graham Osborn who wrote (60648)	4/4/2018 8:19:33 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78748

I'm one who uses profit margins as a metric to evaluate stocks for purchase. If you believe sustainable net profit margin for FB might be 20%, and you come up with a buy point at $60, my opinion is that that is way too tight a number for that level of profit. You will be, and maybe already have been, kept out of some very good stock buys if you are so stringent. Unnecessarily so stringent, imo. Of course, another way of looking at it is: It's not what you don't buy that counts - it's what you do buy that does. (Although I didn't add to FB this am at lows, and as of right now, I regret I did not.)

To: Graham Osborn who wrote (60648)	4/4/2018 10:49:36 PM
From: Spekulatius	Read Replies (2) \| Respond to of 78748

Re FB margins - it is not uncommon for software to have 80% gross margins. FB is similar, if not better, but because they basically run just server farms, they have less G&A and to some extend R&D expense (because of massive scale) and that is why their operating margins are north of 50%. It is possible that they venture into hardware and they would certainly have much lower margins, but that revenue would be incremental and not affect the valuation, I think. Also keep in mind, that FB owns Whatsup, which has gained massive scale in Europe and Asia and to some extend the Americas and currently is not monetized at all. I think eventually FB will get more into ancillary business like multiplayer gaming and payments, where networks effects matter. FB moat in social networks is deep, it much narrower than GOOG for example. I believe FB is under much greater risk than GOOG to get replaced by a better mousetrap, but currently I do not see a credible threat and the possibility is already discounted in the valuation somewhat. When you crunch the metrics, you will find that FB stock based on fundamental metrics is cheaper than it had ever been, and much much cheaper than established growth stocks like V or MA for example. Of course, if you assume that operating margins will get cut by 60% from current levels, virtually any stock will look bad.