If You Like EPS Growth Then Check Out Facebook (NASDAQ:FB) Before It's Too Late

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.'” data-reactid=”28″>Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Facebook (NASDAQ:FB). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.” data-reactid=”29″>If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Facebook (NASDAQ:FB). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" See our latest analysis for Facebook ” data-reactid=”30″>See our latest analysis for Facebook

How Fast Is Facebook Growing?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Facebook's EPS has grown 22% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.” data-reactid=”36″>If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Facebook’s EPS has grown 22% each year, compound, over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Facebook is growing revenues, and EBIT margins improved by 2.7 percentage points to 37%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Fortunately, we've got access to analyst forecasts of Facebook's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.” data-reactid=”51″>Fortunately, we’ve got access to analyst forecasts of Facebook’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Facebook Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.

While we did see insider selling of Facebook stock in the last year, one single insider spent plenty more buying. Specifically the Chief Technology Officer, Michael Schroepfer, spent US$799k, paying about US$164 per share. To me, that’s probably a sign of conviction.

On top of the insider buying, it’s good to see that Facebook insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth US$110b. That equates to 15% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

Should You Add Facebook To Your Watchlist?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="You can't deny that Facebook has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Facebook. You might benefit from giving it a glance today.” data-reactid=”57″>You can’t deny that Facebook has grown its earnings per share at a very impressive rate. That’s attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Once you’ve identified a business you like, the next step is to consider what you think it’s worth. And right now is your chance to view our exclusive discounted cashflow valuation of Facebook. You might benefit from giving it a glance today.