Three months ago Facebook (NASDAQ: FB) was a cautionary tale. Now it’s one of the fastest rising stocks on the market.
Shares of the social network have more than doubled in the last three months, sparked by a late-July earnings report that beat Wall Street estimates and revealed the company’s growing mobile advertising presence.
Prior to that report, Facebook shares were trading at $26.50 – 30% below their $38 IPO price when the stock debuted in May 2012. This morning they opened above $50 for the first time ever.
How high can Facebook go? The P/E suggests it’s extremely overcooked. The stock currently trades at 223 times trailing earnings. Even the forward P/E is high, at 52.
But social media stocks are notorious for their high valuations. LinkedIn (NYSE: LNKD), which is essentially Facebook for the professional world, is trading at a preposterous 952 times earnings. That’s nothing new. Its P/E has been in the stratosphere for years. And yet the stock continues to rise higher, doubling in the last year and rising 213% in the last two years.
LinkedIn is proof that ridiculous valuations aren’t roadblocks to continued share price appreciation – at least not when it comes to social media stocks. That’s why at least one analyst among the 35 listed on Yahoo! Finance has a target price of $60. Most, however, think the stock’s already overcooked.
The average price target is $46.28, or 7% below its current price.
But if Facebook beats third-quarter earnings estimates by 36% the way it did last quarter, then the stock may still have plenty of room to rise.