Dear Followers&Copiers, In this post I run a fundamental/technical investment update for $FB (Facebook), which “is focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces. The Company’s products include Facebook, Instagram, Messenger, WhatsApp and Oculus. Facebook enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Instagram enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends. Messenger allows communicating with people and businesses alike across a range of platforms and devices. WhatsApp Messenger is a messaging application that is used by people around the world and is available on a range of mobile platforms. Its Oculus virtual reality technology and content platform offers products that allow people to enter an interactive environment to play games, consume content and connect with others.” (CNBC)
Another Financial Year (FY) has passed and it’s time to update the equity portfolio of the Global Leaders Portfolio (GLP) in terms of the SIAScore we use. $FB is one of our portfolio names. Let’s quickly remind what SIAScore is and how the process :
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
Let’s analyse each step now…
S1: 1 point
$FB operates in a growing sector with high potential. No doubt. Online communication services are facing a real boom, especially in the post-Covid environment.
S2: 1 points The company is an incumbent leader in its sector, with all other competitors being way smaller and less renowned. In the longer run though a potential threat is other social media platforms, directed mainly at the surrently younger population, gaining much more traction. $FB will have to keep a close eye on the dynamics here. It is of course very well positioned for potential takeovers. The thing will be in not missing the trends, which change very fast in the world of online communicaiotn and social media.
S3: 2 points
2018——2019——-2020——-AVG——-last yr AVG
83,2%….. 81,9%…….80,6%…….81,9%…….83,9%
Wide Gross Profit Margin (GPM) with slightly deteriorating tendencies. The company has very good pricing power for its high-value-added products. Further potential deterioration of GPM must be watched closely in coming years.
S4: 2 points
2018——2019——-2020——-AVG——-last yr AVG
-1,41…….-1,22……..-1,24……..-1,29……….-1,48
$FB‘s net cash position is stable and safe.
S5: 2 points
2018——2019——-2020——-AVG——-last yr AVG
4,1%……..3,6%……..3,0%…….3,57%……….3,7%
The avg 3yr FCF yield is above the minimum treshold level, which is currently at higher of the two: the $SPX500 dividend yield (1,53%) and the 10Y treasury note yield (1,7%). Hence the stock is a good alternative to other stocks, as well as to the risk-free assets, even after such a big move higher in the yields lately.
Aggregate for $FB: 8 points (stable YoY).
Conclusion: Fundamentals of $FB are very sound. Valuation-wise it trades at 31x TTM PE, with the avg for the $SPX500 Shiller CAPE of 36,6x. Additionally its 1yr forward PE stands at 23x, which can be deemed OK on relative basis. Technically the stock has been in a USD250-350 consolidation range for 8 months and has just broken above its recent ATH around USD300 lately, which is a bullish mid-term sign. Avg analyst’s 12-month target price for the stock is USD345.
Best regards, GlobalAlphaS
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