Buy Facebook Inc (FB) Now?

U.S. stocks are relatively flat this morning, with the S&P 500 up about a point and the narrower, price-weighted Dow Jones Industrial Average down 0.21% as of 10:05 a.m. EDT.

Facebook gets a big “like” from investors
Shares of Facebook Inc (NASDAQ:FB) have surged more than a quarter this morning, hitting $33.40 — a level not seen since the day following its calamitous IPO. Fueling the demand for the shares is yesterday afternoon’s upbeat earnings report.

Facebook Inc (NASDAQ:FB)’s “beats” on earnings and revenue are impressive, to be sure: During the second quarter, the social-networking company produced $0.19 of earnings per share against Wall Street expectations of $0.14, while revenue of $1.81 billion was well ahead of the $1.62 billion consensus estimate.

Beyond the fact that these numbers indicate solid growth, it’s the way in which the growth was achieved that must be cheering investors. Indeed, Facebook Inc (NASDAQ:FB) appears to be on top of its transition to mobile — this was a substantial concern that surfaced in the wake of the IPO, weighing heavily on the shares. Mobile revenue accounted for 41% of total advertising revenue in the second quarter, up from 30% in the previous quarter.

Should you buy Facebook Inc (NASDAQ:FB) now? From a short-term perspective, it doesn’t make sense to buy the shares after they’ve popped — indeed, the new information has been immediately factored into the price, and there is no advantage to be gained on a short-term basis in buying the shares now (traders, you’ve been warned!).

For a long-term, fundamental investor, this earnings report provides incremental information regarding the company’s most recent performance and its current position, both of which, in turn, enable you to fine-tune your outlook for the company’s expected future growth path.

Indeed, this morning, the market is doing at least one of two things in bidding the shares up: First, it’s certainly raising its estimates of the company’s future cash flows, second, it may be lowering the risk (and, consequently, the discount rate) it associates with those cash flows. Nevertheless, I think that risk remains underappreciated: At $33.40, investors are valuing the shares at a whopping 51.3 times the estimate for the next 12 months’ earnings per share. Facebook Inc (NASDAQ:FB) is still a speculation, but if you’re interested in technology, there are lower-profile — and lower-risk — opportunities out there.

The article Should You Buy Facebook Now? originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook.

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