Facebook (NASDAQ:FB) shares have absolutely skyrocketed this year, rising about 40% and hitting new all-time highs. Investors have cheered the tech giant's rapid revenue growth and soaring profits, giving the company nearly a $1.1 trillion market capitalization.

While it might be tempting to assume the stock is destined to underperform after such a huge run-up, you might want to take a look at Facebook's fundamentals relative to its valuation before you take this growth stock off your watchlist.

As it turns out, a close examination of Facebook's financials and its competitive advantage shows that it continues to look attractive.

Facebook CEO Mark Zuckerberg at F8 2018.

Facebook CEO Mark Zuckerberg. Image source: Facebook.

Monstrous Q2 results

To put Facebook's incredible business momentum in proper context, look no further than the company's stellar second-quarter results. Revenue during the period was $28.6 billion, with $10.4 billion of this falling down to the company's bottom line. This means that an incredible 36% of more than a dozen billion dollars of revenue converted to after-tax profit during a single quarter.

Furthermore, this puts the company's annualized net income run rate at an incredible $41.6 billion. And let's not forget that Facebook has $64.1 billion of cash and marketable securities on its balance sheet.

Oh, and it's worth mentioning that Facebook's revenue grew at a rate of more than 50% year over year during the first half of 2021 -- and analysts expect earnings per share to compound an average annualized growth rate of about 29% over the next five years.

That $1.1 trillion market cap isn't looking so expensive now, is it?

A powerful competitive advantage

These fundamentals alone make a pretty convincing case for buying Facebook stock. But they still miss one of the most important facets that makes shares of the social network giant worth considering: Facebook's network effect.

One of the competitive advantages of a social network is that the more users it has, the more useful the platform becomes for staying connected with other users. This network effect also carries over to the value proposition to advertisers; more users lead to more engagement and ultimately more valuable advertising spots.

Of course, Facebook doesn't just have a lot of users -- it has more users than any other social network in the world. The company boasts more than 1.9 billion daily active users on its core Facebook platform alone and nearly 2.8 billion unique daily active users across Instagram, Messenger, WhatsApp, and Facebook combined.

No wonder analysts are making bullish estimates about Facebook's earnings. With a network effect that looks nearly impossible to topple, there's less risk in forecasts for years of sustained levels of rapid growth.

It's always possible, of course, that investors and analysts are overestimating the strength of Facebook's network effect. In addition, significant challenges could come from the left field, such as antitrust measures. But even considering these risks, the stock seems to trade conservatively. It wouldn't be surprising to see the stock double over the next five years, earning investors a compound average annualized return of 15%.

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.