Facebook (NASDAQ:FB) is a successful business, and the stock has delivered impressive returns for investors over the last few years. The social network had its IPO in May 2012 at an offering price of $38 per share. As of this writing, Facebook stock is trading at nearly $116 per share, accumulating a net gain of over 205% in a relatively short period of time.

However, past performance is no guarantee of future results, and investment decisions should always be made by looking through the windshield, not at the rearview mirror. Facebook stock is trading at above-average valuation levels, which reflects that investors are expecting sustained growth from the company and the stock could be vulnerable to the downside if financial performance doesn't match expectations. Is now a good time to buy Facebook stock, or is the best already in the past for investors in the company?

Hands typing on a laptop with social media icons floating in the air.

Image source: Getty Images.

Firing on all cylinders

At the end of first quarter, Facebook had 1.65 billion monthly active users, an increase of 15% year over year. Mobile monthly users amounted to 1.51 billion, increasing 21% versus the same period in 2015. This growth says a lot about Facebook's leading position in social media.

Management is translating a growing user base into increased sales and earnings for investors. Total revenue amounted to $5.4 billion last quarter, a 52% increase in U.S. dollar terms and a 63% jump on a constant currency basis. While other companies in social media are struggling to turn revenue into profits, Facebook has a widely profitable business model: The company reported a 37% operating margin last quarter.

Mobile advertising is a key segment in the online advertising industry. eMarketer projects that mobile will account for 69.9% of all online advertising in the U.S. by 2019, rising from 52.4% last year. Facebook is increasingly expanding into this segment -- the company made 82% of revenue in advertising from mobile last quarter, up from 73% in the same quarter last year. 

According to estimates from eMarketer, Facebook comes behind Alphabet's Google in mobile advertising, but the social network is gaining ground versus the search giant. Alphabet owns 31.7% of the U.S. mobile advertising market, followed by Facebook with 19.2%, while Twitter comes in a distant third with an estimated market share of 4%.

Facebook is benefiting from multiple growth drivers. Not only is its user base still growing, but Facebook is also making more money per user over time. Average revenue per user was $3.32 last quarter, an increase of 33% year over year.

Instagram has 500 million monthly users, and 300 million of them are on the platform daily. The size of the user base has doubled over the past two years, and over 200,000 advertisers are using Instagram. The visual language of Instagram makes it particularly attractive to advertisers, and the company is still in the initial phase when it comes to monetizing the buisness. 

Facebook is also a top player in messaging. WhatsApp has over 1 billion users, while Facebook Messenger has more than 900 million. Including both services, over 60 billion messages are being sent every day. Facebook is not even starting to monetize the messaging business yet, which could offer additional opportunities over the long term.

Is it too late to buy?

Facebook's market capitalization is around $336 billion, which makes it the seventh-biggest company on the S&P 500. By contrast, Alphabet has a market capitalization in the neighborhood of of $474 billion, while Twitter is worth only $11.8 billion. Bigger companies tend to move more slowly in the market, and this can make it harder for Facebook to deliver in the future the same kinds of returns it has produced for investors over the last few years.  

When it comes to revenue, Facebook is expected to make $26 billion in sales during 2016, while analysts expect $87 billion in revenue from Alphabet. Facebook is only 30% the size of Alphabet in terms of revenue, so the company still has considerable room for growth if it can steal market share away from its bigger rival.  

Wall Street analysts are on average forecasting that Facebook will make $3.56 in earnings per share during 2016 and $4.60 per share in 2017. Under those assumptions, Facebook would be trading at a price-to-earnings ratio of 32.5 for 2016 and a forward P/E of 25.2 for 2017. This means that investors expect the company to continue delivering above-average financial performance in the future -- though, it's worth noting that high expectations are tough to beat.

Chances are that Facebook stock will not do as well in the coming years as it has done since its IPO. Nevertheless, Facebook is executing in areas such as user growth and financial performance, and the company still has room for growth in segments like mobile advertising, and monetizing platforms like WhatsApp, Messenger, and Instagram. As long as Mark Zuckerberg and his management team keep playing their cards well, Facebook stock still offers attractive potential for investors in the years ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.