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Is Facebook Overvalued?
With a market cap of $22 billion, it’s easy to see why some are wondering: can Facebook cash in on its estimated wealth? This article will discuss the P/E ratio, Free cash flow, Price-to-sales ratio, and PEG ratio. But do you really need to understand these numbers? The answer will surprise you! Is Facebook overvalued? And how much of its wealth is truly based on its user base?
P/E ratio
If you are looking to invest in Facebook shares, it would be a good idea to check its P/E ratio. Facebook is trading at a 30X P/E ratio, below Twitter‘s and LinkedIn’s. But while Facebook’s P/E ratio is higher than its peers’, it’s still lower than Microsoft’s buyout price. That’s despite the fact that Facebook has more sizingable cash flow and is projected to grow revenue faster than the three other companies.
However, it is important to remember that P/E ratios are based on mathematics and they are only accurate when compared to specific situations. In this case, Facebook’s market cap is $50 billion and its earnings and sales in the first nine months of 2010 were $1.2 billion and $355 million, respectively. On the same subject : How to Recover a Locked Facebook Account. However, this amount needs to be annualized. If the figure were adjusted, it would be $1.6 billion and $473 million, respectively.
Free cash flow
The Free Cash Flow (FCF) of Facebook shows the amount of money the company has left over after paying all of its expenses and dividends. Another measure of the firm’s liquidity is the operating cash flow to sales ratio, which indicates the proportion of cash flow to revenue. To see also : How Much Does a VP at Facebook Make?. Facebook’s CCF is a remarkable 7 percent higher than its peers in 2011, and its margins are healthy. Considering its revenue growth, it is worth investing in the stock.
The company has consistently raised its working capital, which has climbed to ninety-five percent and 195 percent from a year ago. According to Rio Investment Research, Facebook Inc. has a high current asset-to-current liability ratio, with the cash account contributing 85 percent of the total. With such a high cash ratio, Facebook is well-positioned to meet its obligations and invest in new product lines. As a result, its stock has risen 40% over the past year.
Price-to-sales ratio
As an investor, you may be interested in analyzing the Price-to-Sales ratio of Facebook. Facebook’s stock has an elevated price to sales ratio compared to other tech companies. This is because of its disruptive business model and unique market position. See the article : Is There an App to Schedule Facebook Posts?. Both companies are incredibly profitable and will likely grow by at least two-fold next year. In addition, the two companies have impressive P/E ratios.
One of the most important metrics for assessing IPO valuations is the price-to-sales ratio, and the P/S of Snapchat is out of line with its P/E. Snapchat is expected to have sales of $500 million to $1 billion this year, and will be valued at $40-$20 per share. That’s close to the pre-IPO valuation of Twitter and Facebook. The disproportionate growth of Snapchat could either expand the company’s IPO valuation or crimp its share price.
PEG ratio
To understand the PEG ratio of Facebook, you must look at the growth rate of the company. The PEG ratio is calculated by dividing the current P/E ratio of Facebook Inc. by its growth rate. This ratio is a useful measure for determining Facebook’s future profitability because it takes growth into account. It is important to compare the current P/E ratio with other companies that have similar growth rates. Here is an example of a PEG ratio chart.
In order to make a profit from Facebook stock, you would have to generate 396.4% of the company’s earnings in five years. However, in today’s information age, it would be difficult for a company to grow at that rate for five years. Moreover, your success would draw fierce competition. Consequently, your P/E ratio would need to be three hundred and sixty-six percent higher than the average for the sector.
Metaverse bet
Facebook’s recent name change to Meta is a bet on the future of virtual reality, a business that is still in its infancy. The social network, which is already valued at about $200 billion, is already facing a variety of challenges — its digital advertising business is being destroyed by privacy laws, employee morale is deteriorating, and its crypto dreams are dead. Earlier this month, Facebook sold some of its assets to private equity firm Silvergate Capital, which is betting on the metaverse.
Although Zuckerberg has been bullish on the concept of metaverse, it is not clear how Facebook plans to make it a profitable business. It wants to partner with other companies and experts and perhaps even governments to make it a reality. The company has already hired over 10,000 people to work on the metaverse, and has invested billions of dollars to make the project a success. Still, Zuckerberg has the final say over the company’s development.