Facebook, Inc. Stock -- Time to Take Profits?

After a run-up in the past month, should Facebook investors take their profits?

Jun 17, 2014 at 11:03AM

Up about 10% in the past month, is it time for Facebook (NASDAQ:FB) investors to take their profits? Not at all.

Forget about the stock, concentrate on the business
Since Facebook went public, it's been a wild ride for shareholders. Consider, for instance, the last six months:

FB Chart

FB data by YCharts

After reaching an all-time high in March of $72.59, Facebook stock tumbled about 22%. But since the stock's most recent sell-off, shares have recovered to levels around $64 -- still a notable 168% higher than levels below $25 one year ago. Investors who own Facebook stock today may be tempted to read into the movements too closely, asking, "Is it time to take my nice profits as shares approach all-time highs again?"

Whatever your inclination and assumptions about the recent volatility of Facebook stock, there is a different and easier way to think about when to sell a stock: focus on the business.

Purely focusing on the business frees investors from the impossible task of speculating stock price movements and enables them to think longer-term by studying the underlying business. Using this approach, investors can forget about the stock price and hold on to the business as long as the company is meeting or exceeding their expectations.

On that note, how is Facebook's business doing?

Facebook is firing on all cylinders
The social network has outperformed expectations on almost all fronts since Chief Executive Officer Mark Zuckerberg took Facebook's ad business mobile.

Facebook Video Ads

Facebook mobile app. Image source: Facebook.

First, consider how fast Facebook's mobile ad business has grown. Just a year and a half after it began mobile ads, they now account for 59% of total ad revenue.

Second, successful execution on mobile ads has sent the social network's total ad revenue soaring, up 82% from the year-ago quarter, helping Facebook crush analyst estimates yet again in its most recent quarter.

Finally, and probably most impressively, Facebook isn't just growing, it's growing faster every quarter. Year-over-year ad revenue growth rates have accelerated for four quarters in a row.

Sure, not everything is looking hot for Facebook. Big price tags for its two recent acquisitions, WhatsApp and Oculus, seem somewhat speculative. And investors question whether or not the current volume of ads, packed into a small mobile News Feed, is sustainable.

But, for now, Zuckerberg & Co. are handily and consistently outperforming expectations. Examining the business, Facebook hasn't given investors a reason to ditch the stock yet.

Forget about the volatility in the stock price and hold on to this disruptive business.

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Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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