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In One Chart - August 2, 2018

In One Chart: Facebook & Apple – A Tale of Two Earnings

Facebook (FB) and Apple (AAPL) could not have had more different earnings announcements.

While the social media giant posted the largest single-day market cap loss ($119 billion, or 19%) in stock market history, the consumer tech stalwart today touched a market cap of $1 trillion, the first company ever to do so.

In combination, Facebook’s catastrophic drop and Apple’s (nearly) monumental achievement stir up a couple questions: Are these price movements justifiable? Is Facebook under- and Apple overpriced?

Consider that the simple average forward PE ratio of the NASDAQ-100 (^NDX) is 30.9 and the year-over-year revenue growth simple average is 14.3%. Now consider the chart below, plotting the same metrics for Facebook and Apple.

Facebook’s forward PE came down to 23.29 — seven points below the NASDAQ-100’s simple average. While its YoY revenue growth trended way down, at 41.95% it’s still nearly 3-times higher than the index’s simple average. Facebook’s revenue is still growing at an impressive clip, just not as impressive as it once was. Investors may see this as an opportunity to capture well-above-average growth at a now-only-slightly-above-average price.

Apple, on the other hand, has a forward PE of 17.14; this is a little more than half the NASDAQ-100’s simple average, but is trending higher. Apple’s YoY revenue growth, 17.3%, is just above the average 14.3%, and is also trending higher. Even at all-time price highs, investors may see in Apple an opportunity to buy average-level growth at well-below-average prices.

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