Why Facebook Isn't Overvalued

As Facebook Inc (NASDAQ: FB) continues to make new all-time highs on a daily basis, concerns regarding the company's valuations are growing. Will Danoff, Fidelity Contrafund portfolio manager, was on CNBC Tuesday to discuss if the valuations at which Facebook is currently trading are justified.

A Valuable Position

"I love what Mark Zuckerberg and Sheryl Sandberg are doing at Facebook," Danoff said. "There are not many businesses that I know of that have 1.3 billion users monthly, 900 million daily users. That is a very valuable franchise and platform.

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"I think we are just starting to see the monetization of that. I think you have got a great visionary in technology. How many people at 29 years old had a billion customers? I don't know of any other. So, I think the stock has come up [...] it's doubled since the IPO three years ago."

He continued, "The business itself has more than doubled, and my experience is that companies relatively new to the marketplace in their first 10 years are at their most attractive points in terms of growth rate, cash flow generation and ability to participate in a growth market. And I think more and more people are spending more and more time on their smartphones. And Facebook is, I believe, the number one app in the market, and I think that's going to be a very valuable position."

You Haven't Missed The Boat

Danoff was asked if one can still buy Facebook, keeping in mind that Facebook's stock has doubled since its IPO. He replied, "I have been managing Contrafund for almost 25 years. I have added over 300 basis points a year over the S&P 500. So, I have seen a lot, and what I have learned is that stocks follow earnings per share.

"And I think a contrarian call is to say if a stock has doubled or troubled, you haven't missed it. Bill Gates didn't sell after Microsoft's first double."