Facebook: Stock Metric and Methodology
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If you had to rate Facebook (FB) as a Buy, Hold, or Sell. Discuss the metrics and methodology used in making your determination.
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Solution Summary
The solution discusses the stock metric and methodology of Facebook.
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Introduction:
Stock metrics can be described as the stock market indicators that help someone in judging whether a certain company is a good buy or not. In this case, stock metrics are used in analyzing the value of a stock or a company. By doing this, one is able to understand how much they value their stock and even how much they would value it in the future. In this case, stock metrics can be used in valuing Facebook, it would be important to focus on the fundamental metrics that would enhance the path in cash gains. Because I would like to invest based on value, there are a number of metrics on which I would use to analyze Facebook stock (What are Metrics, 2006).
In valuing Facebook, a number of stock metrics are used in making the determination. I employ one of the most known and also a valuable metric known as price to earnings ratio. This metric, also known as P/E ratio divides the stock's share price by its earnings per share so that we are able to come up with the value that best represents how much investors are willing to shell out for each dollar of Facebook earnings. In this case, the price of Facebook should be able to represent the value which would have come in form of earnings from the company. This metric is important since it provides us with the measuring stick in order to compare how different companies value their stocks. In this sense, a stock that seems to be at a lower price to earnings ratio would cost less per share with the same performance than one with a higher profit to earnings ratio. By the profit earnings ratio being low, it means that Facebook should follow that way in valuing its stock. This metric can however not be applied to companies that are in different industries in valuing their stocks because there would be differences in such valuations (5-Must Have Metrics, 2012).
The other metric used in determining the value of the stock is price to book ratio. With this metric, we are able to ...
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