Here's Why Facebook's Zuckerberg Is Getting the Last Laugh - TheStreet

Facebook (FB) - Get Report is once again proving the naysayers wrong. In fact, it's fast-becoming one of the most appealing growth stocks today, despite the overall market's wild volatility and the riskiness of social media as an investment. While critics dismiss the company as over-hyped and overvalued, it's increasingly apparent that Facebook founder and CEO Mark Zuckerberg is getting the last laugh.

The social media giant's fourth-quarter report card exemplified how analysts had surprisingly underestimated the company's potential to explode its earnings, putting Facebook among a certain group of momentum stocks that look highly promising right now.

Image placeholder title

FB

data by

YCharts

Given its track record, we believe Facebook will keep the momentum going. With nearly $19 billion in cash, 34.72% operating margins and solid sales growth, today the company is an Internet behemoth, delivering Alpha on tap. Here's what it's doing so right.

As mentioned, the fourth-quarter score sheet was impressive.

Facebook earned 79 cents in earnings-per-share (EPS) on $5.84 billion in revenues for the quarter, beating even the most bullish estimates for EPS of 75 cents and revenue of $5.67 billion. As regards bottom line performance, this is at least the fourth straight quarter it's broken through all earnings expectations.

Interestingly,Twitter is also delivering spectacular numbers, and its biggest supporters are eagerly awaiting the December 2015 quarter results (out Feb. 10).

For now, Facebook's mobile bets are clearly paying off. For the first time, more than 90% of both monthly and daily active users were on the mobile app as well. Bear in mind, mobile usage comprises 80% of ad revenue for Facebook.

Advertisers working with the company just keep growing (over 2.5 million at last count). For the next two years, analysts are projecting a 30%-to-35% rise in topline and a 26%-to-32% growth in EPS, which could actually turn out to be much stronger.

In fact, it's the current climate that makes Facebook's success even sweeter, at a time when tech-titanApple sounds so cautious and the mood globally is rather bleak. And to further accentuate the sense of perspective, Facebook operates in the same space as Yahoo!, a company that's consistently struggling.

Today, Facebook's portfolio of products covers a vast area of connected services, including social network, virtual reality, messaging and photo-sharing.

What's clearly working for Facebook is that its social network has been nurtured with great patience and a deep understanding of consumer behavior. The company's immense and hyper-connected social bedrock is its most valuable asset, something its rivals would want to build but likely never could. As an investor, you should look for companies with competitive technological advantages, as exemplified by Facebook's continual innovation.

In an economy that is grim in its outlook, to put it mildly, Facebook is able to consistently generate huge cash profits. While it doesn't offer dividends yet, its return performance has been solid. Dividends, unless you are an income investor, shouldn't be the only priority for those valuing growth.

It all started out with its 2012 IPO, the biggest in technology and one of the biggest in history, with a peak market capitalization of over $104 billion. Today, the company sports a market cap in excess of $300 billion.

Even though the stock had to address a couple of challenges around its IPO, it has delivered fantastic gains since then. In 2013, the stock gained 105.3% when Internet stocks offered average total returns (including dividends) of 73.21%. In 2014, when its peers were able to generate less than 4% gains, Facebook gave you 42.77%. In 2015, it pushed the pedal again with 34.15% gains even as the S&P 500 on a total return basis moved up by only 1.38%.

Let's look at another similar stock you could consider, Alphabet (GOOG) - Get Report . At current prices, even after those blow out years, Facebook trades at a price-to-earnings growth (PEG) ratio (five-year expected) of 1.09. Alphabet, with its fortress balance sheet and superb ad network, seems costly at a PEG ratio of 1.46. And yes, it doesn't offer any dividends either.

Image placeholder title

GOOG

data by

YCharts

In this landscape, Facebook is taking giant strides and entering arenas with a host of smart ideas (even as the dominant player looks on). Notable case in point is Facebook's Sports stadium, a sports feed that takes the fight to Twitter's real-time content capabilities. Also up for your consideration is Facebook's claim that over 100 million hours of video is watched on its platforms every day, which isn't great news for Alphabet's YouTube.

Analysts are suggesting a median 12-month price target of $134.50, a 23.3% rise from current levels.

As we've just explained, Facebook has momentum on its side. I've also found a small-cap tech stock that has the potential to surge 100% or more in the coming months. This is a growth story with major momentum, so it's important to learn the full details as soon as possible. The stock is trading at under $8 a share, and its long-term prospects have never been better, making it a great value. I expect this rocket could take off soon, so be sure to click here now and learn more.

You see Jim Cramer on TV. Now, see where he invests his money and why Facebook stock is a core holding of his multi-million dollar portfolio. Want to be alerted before Jim Cramer buys or sells FB? Learn more now.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.