Tag Archives: nasdaq 100 index

Facebook – It’s Time to Have Another Look!

Facebook’s second quarter earnings were a blowout.

In my last blog post on February 3, 2013 (here) I was hoping FB would trade down to EBV+5 – the $20 level – where I believed investors/traders would be presented with a good buying opportunity.  Facebook traded down to a low of $22.67 on June 6, 2013 then started to trend upward to a little over $26 a share before FB’s second quarter earnings release.  Subsequent to its earnings release FB shares blasted through EBV+6 and is trading around its IPO price of approximately $38 a share.

Model Price Chart

Facebook Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Facebook Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

 

It has been over a year since Facebook has been a public company and over this period of time it has been a rough ride for the company.  The birthing process from a private company to public entity has been a trail by fire with initial public investors, those who paid $38 a share, facing losses and probably tarnishing the Facebook brand in the eyes of many.  The big issue the company faced and the market demanded was the shifting of its presence from the web-based PC platform to mobile.  Facebook announced in their recent second quarter conference call that mobile-based active users, in just two years, exceed 100 million users much to the cheer of market participants.

However as you come to expect from this blog, let’s go a couple of steps further in terms of analysis – Model Price analysis.

I pulled from our database the usual charts. The first looking at our theoretical earnings (TE) calculation versus the published 12-month forecast of earnings per share (EPS) of Facebook.

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For simplicity sake, I chart the ratio of the two lines in my second chart below.

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From looking at the data, I can see why the market is very pleased with Facebook.  When the differential between TE and forward-looking earnings per share are increasing the market will add valuation – recognizing Facebook’s improving fundamentals.

But isn’t our calculation of model price below where the stock is trading?

Yes it is.  But look at the dynamic of our model price history over the last six months.  Our model price line has increased substantially especially over the last month.  (see chart above)  The market, through Facebook’s share price and valuation, is anticipating substantially better earnings in the future than what analysts are currently projecting.  This is what happens with very strong growth companies, market participants anticipate ever increasing earnings per share growth in the coming quarters.  In other words our model price calculation will be substantially higher as equity analysis further adjust earnings upward as new and hopefully increased earnings are forecasted.

If the market is disappointed anytime in the future market participants should expect a violent correction in that excess valuation is taken away from the company as bullish expectations are readjusted.

Conclusion

Since the IPO, Facebook has face many challenges and disappointments.  As at the writing FB is now trading in line with its IPO price and the mobile platform switchover seems to be underway.  Facebook’s baptism hijinks seem to have settled down and the fundamentals seem to indicate a stable environment of substantial earnings growth with stable to slowly upward growth in theoretical earnings.

Investors who are nervous about Facebook and its progress can wait for the positive transit of EBV+7 or $41.52.  If this positive transit were to occur before the third quarter results, this will be a market signal that good news will probably be announced.

Nasdaq Hits 11 year High this Week. Six Stocks have “Stand Out” Model Price Charts!

One week ago we suggested a bull market in the making on the social media front, here.  With this post we suggested the financial press and others would point to excessive valuations in social media just like 1998-99 period with internet stocks.  Let’s go a step further in remembering this period.  Investors and portfolio managers suggested instead of investing in the Internet stocks directly, because of excessive valuation, why not invest in the “picks and shovels” of the Internet companies.  No matter what happens in the social media, these companies have to buy/install computers, switches, servers, database software and more.

So we quickly reviewed all the charts in the Nasdaq 100 Index and selected 6 companies that stand out.  What to we mean by “stand out”?  We have a saying, if you hold up these model price charts three miles away and we collectively say, “buy” these investment ideas “stand out” from the rest of the pack.  From past experience, investing gets real easy when we ask ourselves this simple question.  If one has to “squint” at the chart to make an investment case then the odds of a winning position are reduced considerably.  Also these stocks certainly qualify to be the “picks and shovel” stocks people were referring to 12 years ago.

Some observations before we get to the companies themselves.

1               In past blogs we have reviewed several social media equities and have noted these companies trade at EBV+7, 8, and 9.  This is a very high multiple to book.  This is reasonable if growth continues as it has in the past.  However, if growth slows, investors will suffer big losses as multiples shrink, probably quickly.  The companies highlighted in this blog trade at EBV+3,4 and 5.  Big difference.

2               The selected equities are all trading either at their model price or under.  Some of these companies trade at a discount of more than 30 percent of their model price or fair market value.

3               For fun, we will highlight what valuation these companies traded back in ’99 and ’00.  Yes, these companies traded back in’99 – ‘00 where the social media stocks trade today even though they were considered “old” technology.  We have the database; we may as well use it!

In no particular order:

A) Apple Computer (AAPL)

We think we have blogged enough about Apple see:

i) Apple – Model Price Update – Next area of Resistance is $600

ii) Apple – Four Actions Management Can Do to Double Their Stock Price (Without Breaking a Sweat)!

Apple with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Looking back to the ’99-’00 period Apple only traded at the EBV+6 level, which was considerably less than today’s price.  Even though the valuation level wasn’t excessive compared to the others we will list, shareholders were still hurt in the ’00 – ’01 period.  (AAPL shares fell to EBV).

B) Microsoft Corp. (MSFT)

We have written a blog post on MSFT recently see here.

Microsoft with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

In the ’99 – ’00 period MSFT traded at EBV+9.  If MSFT traded at EBV+9 level today the stock would be trading at $ $154 per share.

C) Intel Corp. (INTC)

Intel with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

In the ’99 – ’00 period INTC traded at EBV+8.  If INTC traded at EBV+8 level today the stock would be trading at $ $133 per share.

D) Cisco Systems (CSCO)

Cisco with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

In the ’99 – ’00 period CSCO traded over EBV+9.  If CSCO traded at EBV+9 level today the stock would be trading at $ $180 per share.

E) Oracle Corp. (ORCL)

Oracle with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

In the ’99 – ’00 period ORCL traded at EBV+10.  If ORCL traded at EBV+10 level today the stock would be trading at $ $342 per share.

F) Dell Inc. (DELL)

Dell with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

In the ’99 – ’00 period DELL traded at EBV+10.  If DELL traded at EBV+10 level today the stock would be trading at $ $231 per share.

WE ARE NOT SAYING THESE ARE OUR TARGET PRICES ON THE ABOVE EQUITIES BY LOOKING AT THEIR RESPECTIVE VALAUTIONS BACK IN ’99 – ’00.  We just thought it would be fun to compare oranges to oranges what valuations were like 12 years ago on these companies.  Context.  We hardly see any historical perspective in the financial press, so when we have the opportunity we like to add it!