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Do Any FAANG Stocks Seem Undervalued?

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Apr. 10 2019, Published 7:05 a.m. ET

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FAANG stocks have generated significant returns for investors over the last few years. However, with the economic slowdown, trade wars, and macro weakness, are they still a safe bet? Should FAANG stocks still be an investor favorite? Let’s look at the valuation for these stocks in this article.

Facebook (FB) has a forward 2019 PE ratio of 17.6x and a forward PE ratio of 15.6x for 2020. Given that its expected earnings growth is -0.1% in 2019 and 17.3% in 2020, the stock looks marginally overvalued. Earnings for Facebook are likely to rise at a CAGR (compound annual growth rate) of 16.4% over the next five years.

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Apple

Apple (AAPL) has a forward 2019 PE ratio of 23.3x and a forward PE ratio of 19.9x for 2020. When we compare these figures with its expected earnings growth of -4.5% in 2019 and 12.6% in 2020, the stock looks overvalued. Earnings for Apple are likely to rise at a CAGR (compound annual growth rate) of 13% over the next five years.

Amazon

Amazon (AMZN) has a forward 2019 PE ratio of 68x and a forward PE ratio of 47.6x for 2020. When we compare these figures with expected earnings growth of 36% in 2019 and 45% in 2020, the stock looks a tad overvalued. Earnings for Amazon though are likely to rise at a CAGR (compound annual growth rate) of 60.8% over the next five years. This stock seems to be a safe bet given its robust earnings growth.

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Netflix

Similar to Amazon, Netflix (NFLX) also has a high forward 2019 PE ratio of 89.5x and a forward PE ratio of 56.3x for 2020. Its expected earnings growth is 50.7% in 2019 and 57.2% in 2020. Earnings for Netflix are likely to rise at a CAGR (compound annual growth rate) of close to 50% over the next five years.

Google

Google (GOOGL) has a forward 2019 PE ratio of 21.92x. When we compare these figures with its expected earnings growth of 16.5% in 2019, this stock also looks overvalued. Earnings for Google are likely to rise at a CAGR (compound annual growth rate) of 17.6% over the next five years.

The bull run in 2019 might have resulted in the overvaluation of FAANG stocks. However, these companies continue to grow their sales and bottom lines at a robust rate and will likely be an attractive buy whenever the market undergoes a correction.

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