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0 pointsmathattack4y ago0 comments

It’s not about accuracy. If a stock is priced at a huge multiple to earnings and sales, the market consensus is enormous profit growth for a sustained period. When the slope of the curve moves (or changes direction) the NPV (Net Present Value) of future cash flows drops dramatically.

The miss is also against future guidance. This could be answering a question of “Is Facebook too distracted to grow their core business?”

Anyone who thinks they’re more rational than the market can take the other side of these large moves. (Many quant hedge funds do)

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7 comments · 3 top-level

skizm4y ago· 4 in thread

> If a stock is priced at a huge multiple to earnings and sales...

FBs P/E ratio was well into the value stock territory of ~22 before this dip. They were trading at the lowest multiple of any other big tech company by far, now they're even more insanely undervalued from a fundamentals perspective. I realize that doesn't matter in the age of the meme stock, but personally I'm still pretty bullish in the long term and that's assuming the XR stuff is just a giant money furnace and returns nothing.

idoh4y ago

Agreed. I was looking at them even before this dip. They are valued so low that even if they simply maintain current earnings relative to inflation they are an OK investment.

onlyrealcuzzo4y ago

For reference the S&P average P/E is ~25.96.

FB at it's worst is growing much faster than average, it's balance sheet is healthier than almost every other company beside MAAG, and yet it is valued below average.

pembrook4y ago

Also for reference, the entire rest of the world outside the US has an average P/E of 14.5 right now.

Make of that what you will.

Also, re: the parent comment, a P/E of 22 would traditionally never be called "value stock territory"...whether or not that valuation is too pessimistic about Facebook's growth prospects.

grey-area4y ago

That PE means it is grossly overvalued, concentrated in a few large tech companies. Saying pe 22 is value territory just illustrates the massively distorted current market.

Historically, around 15 is the mean, not 25

https://www.multpl.com/s-p-500-pe-ratio

swyx4y ago

at the same time, dont take guidance misses literally out of context. many companies habitually sandbag guidance (so they can “beat” guidance every quarter) and then analysts play kremlinology to figure out what the “real” guidance is.

kstrauser4y ago

Whoa, thank you! I’d had that same question, and now that makes much more sense.

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