Pro Perspectives 2/8/22

February 8, 2022

Let's take a look at Facebook. 
This stock closed below pre-pandemic levels today.  It's down 34% in just the past five trading days. 

As we've discussed for quite some time, a rising interest rate environment is bad news for high valuation, high growth stocks.
Despite it's size and maturity (being part of the "big tech" oligopoly, and having garnered a trillion-dollar valuation just months ago), Facebook remains a high growth stock. For 2021, the company grew revenues at 37% and operating income by 42% (year-over-year).
With that, as Wall Street contemplates factoring in an discount rate (interest rate) in their valuation models, the valuation comes down.  
But how far is too far?
Consider this:  Facebook was trading north of 25 times earnings before Jay Powell's pivot on the inflation outlook late last summer.  Today, it's 16 times.  That's now in-line with the long-term broader market multiple and its the cheapest valuation on Facebook since becoming a public company (which means, in the history of the company, including its history as a private company).
So, today you get a high growth company with a dominant market position, with 40% operating margins — at a long-term average broad market multiple.  It's a buy.