Stock pick: Facebook Inc. (FB) mobile growth gets a Like from analysts

Keep an eye on that PE, though

Chart showing 12-month trailing stock performance for Facebook

To buy Facebook or not to buy Facebook? That’s the question investors have been asking themselves since the company (NASDAQ: FB) went public in May 2012. On one hand it’s a leader in the growing social media space, on the other it’s a hot tech stock that could fall in price if even the slightest thing goes wrong.

Other than its disastrous IPO, it’s been so far so good for the company’s investors. The stock is up 59% since it listed and it’s climbed 11.3% year to date. Perhaps more importantly at this stage, the company is blowing earning estimates away.

On April 23, it reported  Q1 earnings of 34 cents on revenues of $2.5 billion. That’s a 72% revenue increase over the year before and it was way above analyst expectations of 24 cents a share on $2.36 billion.

It also did well in the all-important mobile category. It exceeded 1 billion mobile monthly average users for the first time last quarter and 59% of its revenues came from mobile, up from 30% in Q1 2013.

Those positive results have made a number of analysts increase their price targets, including Michael Graham, an analyst with Canaccord Genuity, who boosted his 12-month target form $70 to $75.

He’s excited about the increase in overall ad revenues — up 82% year-over-year — and, as he says, “the shift towards a lower-volume, but much higher-price mobile-newsfeed ad paradigm.”

Jason Helfstein, an analyst with Oppenheimer who has a buy rating on the stock, adds that advertising growth was seen across all regions, with Asia experiencing the most growth — 89% year-over-year — and the U.S. coming in second with 88% growth.

Facebook should continue posting good numbers, says Graham. He believes the company can keep finding new ways to monetize its services — it still has more work to do with its photo site Instragram, for instance — and that will keep the stock moving higher.

He estimates that revenues will increase from $7.9 billion in 2013 to $15.6 billion in 2015, while earnings per share will jump from $0.88 to $1.77 over that time.

Of course, there are some risks with this company. It’s trading at 77 times current earnings, which many people will find expensive. It is a growth stock, so PEs should be higher than, say, a value stock, but if it does miss earnings one quarter it’s likely the stock price will drop.

David Ebersman, its popular CFO, is also stepping down. While he’s being replaced by David Wehner, Zynga’s CFO, change at the top levels always brings a certain amount of uncertainty with it.

Still, the majority of analysts are bullish on the stock. It’s currently trading at about $60 a share, but the mean target price is $83, with the highest 12-month price at $99.