After a high-flying run fueled by both innovative and disruptive business models and a lengthy bull market that lasted almost a decade, the FAANG stocks appear to be returning to earth. Or at least they’ve dropped from orbit all the way down to the stratosphere. Facebook, Apple, Amazon, Netflix and Google were the tech stocks to watch for the 10 years following the financial crisis — considered by many to also be the best tech stocks on the market — but they have also been hit especially hard by the recent pullback in the stock market.
But does that paring down of share values mean that these are now the best tech stocks to buy? Are the FAANG stocks no longer hot, trendy securities but rather cheap, bargain tech stocks for the prudent buyer?
Of course, the final answer to that question comes with time. Once you see the share price years from now, it becomes clear whether the stock was a true “bargain” to begin with. But as any value investor will tell you, it’s still worth carefully considering what you’re paying for a share of stock in the context of the company’s balance sheet and income statements. In particular, value investors like to rely on metrics that give you a simple ratio between the price you’re paying and the company’s profits (price-to-earnings, or PE ratio) or overall revenue (price-to-sales, or PS ratio). Lower ratios indicate more profits or sales for every dollar you’re paying, so they’re usually a good sign.
So, using price ratios as our guide, here’s a closer look at whether these stocks are now a bargain.
Discount on Highest Price of the Last Year: 31.8 percent
PE Ratio: 22.46
PS Ratio: 8.25
Facebook clearly had a bit more contributing to its decline than just a market correction. After all, the stock lost nearly a third of its value from its one-year high compared to just 9.4 percent for the S&P 500. And clearly, how the company continues to navigate its ongoing PR issue surrounding how it shares user data with advertisers is the major question surrounding the stock right now.
But, setting aside questions of whether or not Facebook’s current levels of revenue and profits are sustainable, if they do at least maintain at current levels — let alone keep growing — Facebook is starting to look like a real value at its current price. With a PE ratio falling between 20 and 25 and a PEG ratio just over 1, Facebook continues to make a lot of money and now has a share price that could make it easier to buy in.
Amazon: Not a Bargain
Discount on Highest Price of the Last Year: 18.5 percent
PE Ratio: 93.6
PS Ratio: 3.7
Amazon is one of just two companies to hit a market cap in excess of $1 trillion, and it might find its way back to that level in the long run. However, that’s fitting, as Amazon’s value as a stock has always been about its future, not its present. And even with a percent decline off its high point — one that shaved about $30 billion off of Jeff Bezos’ net worth — Amazon remains a company that’s more about growth than anything.
The PE ratio approaching 100 is clearly a red flag for any value investor, but it’s also not the right metric for Amazon, which continues to plow its profits back into funding that growth. However, even just gauging the share price against total revenue, the company’s stock still looks a bit pricey, with a PS ratio over 3.5.
Discount on Highest Price of the Last Year: 32.4 percent
PE Ratio: 13.25
PS Ratio: 2.81
Almost everything about Apple’s stock right now would appear to be screaming value buy. One could make the argument that its association with the FAANG stocks has led investors to forget that Apple is an older, mature company that clocks truly massive profits year after year.
Granted, concerns about waning iPhone sales warrant a very close look. After all, if those profits start to decline, it changes the equation in a major way. But, for the time being, Apple’s PE ratio of just over 13 would be low for a utility stock, let alone one of the most visible tech stocks out there.
Netflix: Not a Bargain
Discount on Highest Price of the Last Year: 20.1 percent
PE Ratio: 126.14
PS Ratio: 9.33
Netflix currently finds itself in the midst of a high-profile effort to massively expand its content portfolio even as competing platforms from Disney — which recently bought up a ton of content when it purchased much of 21st Century Fox — and AT&T — which did the same with Time Warner — are both poised to debut next year. And they’re fueling that content binge with a truckload of debt, which won’t show up in the PE ratio but will still present a pretty important consideration for investors.
Still, like Amazon, an investment in Netflix is really one in the future. As long as they can keep growing subscribers, it might be an attractive buy, but it’s anything but a value stock. Its current price might or might not be warranted by its growth rate, but it’s definitely not warranted by the present-term profits or sales numbers. With a PE ratio well north of 100 and a PS ratio nearing 10, “bargain” doesn’t exactly apply when talking about this stock.
Discount on Highest Price of the Last Year: 14.7 percent
PE Ratio: 41.34
PS Ratio: 5.87
So, yes, Google is now technically Alphabet, but there’s already two As in there and no one seems particularly ready for a debate on how to pronounce FAAAN, so it appears as though it’s still Google for these purposes.
And Google is probably the hardest call of the bunch. The PE ratio in the low 40s is clearly much higher than Facebook or Apple, but it’s less than half that of Amazon or Netflix. Likewise, the PS ratio of just under 6 is way higher than Apple’s, but it certainly looks pretty good to a Netflix investor.
Still, a PEG ratio of just over 1.5 would seem to indicate at least a fair price based on both current and future profits, even if it’s probably not a rock-solid buy. Either way, given how much shares would have cost you at this time last year, Google would appear to be a bit closer to the bargain side of the equation than not.
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Information on stock prices and statistics is accurate as of market close on January 25, 2019.
This article is produced for informational purposes only and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions carefully.