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Is Facebook a Buy Yet?

Anders Bylund
August 21, 2012

When Facebook (Nasdaq: FB  ) was but a young pup with a $27 price tag per share, I said that the stock was severely overvalued. In fact, I thought it was "a sell at almost any price."

Three months later, the stock has fallen another 30%. Facebook has taken a 50% haircut since hitting the public markets.

Maybe it's time to reconsider. Is Facebook a buy at these discounted prices?

Many investors would take one look at the P/E ratio and run away, convinced that no company is worth 67 times trailing earnings or 10 times sales. But that's a simplistic knee-jerk reaction based on one of the quickest, but weakest, valuation tools available. The same P/E-centric investors also missed out on (Nasdaq: AMZN  ) and its terrific growth story, because that stock's P/E ratio rarely dips below 50:

AMZN Chart

AMZN data by YCharts

Amazon keeps its earnings low on purpose. This keeps taxes low, while allowing the company to focus its cash use on rapid growth opportunities. I don't see investors complaining about the 1,500% returns this strategy has produced over the last decade. Could Facebook be onto s similar low-profit strategy with a huge long-term payoff?

Word on the Street
Okay, so let's ask the Wall Street crowd. Surely, analysts must have come up with some strong catalysts for Facebook. After all, even the most pessimistic of the herd's 21 target prices sits at $23 per share. That's a very respectable 19% premium to current prices.

But there's no consistent bull story to lean on. Several firms like Facebook's improving revenue muscle. Wells Fargo, for one, sees "multiple avenues for sustained revenue growth in excess of 25-35% for the coming years as advertising dollars shift to online, social ad spend gar