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You've failed to factor in growth rate. Your calculations for how long it will take to earn back the share value are assuming no growth in EPS over that timefr
by WillyF 14y ago
You've failed to factor in growth rate. Your calculations for how long it will take to earn back the share value are assuming no growth in EPS over that timeframe.
I wouldn't be surprised if Apple's EPS growth outpaces Facebook, but these numbers are completely meaningless until you at least make a stab at adding in projected growth.
- antr 14y agoWillyF, I'd be more than happy to know "your" expected growth rate. Facebook has not disclosed its business plan, views on the online ad market, ongoing capital expenditures and working capital needs. Who's failed to provide future growth information is Facebook, not the other way. More importantly, the Tech audience keeps looking at P/E as a valuation metric, but what rigorous and top asset managers do is look at Free Cash Flow to Equity, not Net Income. On a FCF to Equity valuation, FB IPOed at +220x. Even at a generous P/E or FCF/E ratio of 25x, Facebook's Free Cash Flow needs to go from $450m to $4,000m in the next 24-36 months. Do you think that is possible? After looking at their infrastructure needs I think not. I think it's you who has failed in the calculations.
- WillyF 14y agoHow can I fail in the calculations when I didn't offer any calculations? All I said is that if you're using P/E ratio as a metric without a growth rate, you're doing it wrong.
- foolinator 14y agoWillyF, the last comment was a big aggressive to you to bring home the point, but I believe the main point was that even with generous predictions on their future business plan (which as far we all know doesn't exist) that facebook is overvaluated by, well, a lot.
- antr 14y agoCase and point. thx