FACEBOOK:FUNDAMENTAL ANALYSIS+PRICE ACTION|NEXT TARGET|LONG🔔🔔

Although the Facebook stock is up nearly 33% for the year, some analysts are concerned about the company's prospects. The stock's rise declined after the company released its second-quarter results in late July, as investors were concerned about a slight decline in daily active users in the U.S. and Canada, as well as earnings projections.

Nevertheless, the company beat analysts' expectations, reporting year-over-year revenue growth of 56% and earnings per share (EPS) growth of 101%. Both figures exceeded consensus estimates.

While there are a few worried analysts, don't count Credit Suisse's Stephen Jue among them. After the quarterly report was released, he raised his target price per Facebook share to $500 from $480 and maintained his outperform rating. This is now the highest price target among Wall Street analysts.

While most analysts set price targets for 12 to 18 months, there are several indicators from a valuation perspective that suggest Facebook should be worth $500 a share now. First of all, this is when comparing Facebook to smaller peers such as Twitter and Snap, which trade at projected price-to-earnings (P/E) ratios of 70 times and 270 times, respectively. Facebook's forward P/E ratio is 28.5.

Sure, both companies had higher growth rates than Facebook's 56 percent increase in the top line last quarter -- Twitter by 74 percent and Snap by 116 percent -- but it would only take a 40 percent increase in value to become a $500 stock, which is equivalent to 40 times projected earnings for Facebook.

Comparisons to the broader market also seem favorable when growth is taken into account. According to Standard & Poor's, Facebook is trading at 27 compared to 31 on the S&P 500, even though the S&P 500 had negative sales growth over the previous year (compared to Facebook's 56% growth previously noted).

Finally, Facebook has another way to make it easier to reach the $500 per share price: shares buyback. Reducing the total number of shares increases earnings per share and raises the price per share, all other things being equal. Earlier this year, the company increased its share buyback by adding $25 billion (now 2.5 percent of total shares) to its existing $8 billion authorization.

Of course, the Facebook stock carries some risks. It's a rare company that draws bipartisan ire at both the federal and state levels. A recent lawsuit by 48 states as well as the Federal Trade Commission for illegal monopolization was dismissed.

State attorneys general have indicated that they will fight the decision. While the rhetoric is heated to the extreme, it is likely that any risk is short-term and has little impact on Facebook's core business.

However, Zuckerberg is working on something new, and this could be the biggest opportunity for the company. In his last earnings report, the CEO stated his desire to turn Facebook into a "meta-universe company" within five years. The company has high hopes for an inspired VR experience, which it expects will replace the mobile Internet.

Despite Zuckerberg's fervor, investors should view any meta-village-related revenue as the cherry on top of a strong core social media business. It is this optionality that makes the company a sound investment.

Facebook's $500 price tag doesn't seem far-fetched, and long-term investors are likely to see the stock exceed that figure - perhaps even sooner than 18 months from now.

In addition, the Facebook stock fell yesterday along with the broader market decline on a weak retail sales report. That's probably what caused the social media giant's stock to fall since the performance of its advertising business is closely tied to overall consumer spending. Also, company officials said they would remove Taliban or pro-Taliban content, deeming the group a terrorist organization after its takeover of Afghanistan just the other day.

By the end of the day, Facebook shares were down 2.2%, while the S&P 500 was down 0.7% and the Nasdaq lost 0.9%.

Total retail sales in July were worse than expected. The Census Bureau reported that total retail sales fell 1.1% from June through July, with auto dealerships, clothing stores, and e-commerce especially weak. The main takeaway from the report seemed to be that the delta variant of COVID-19 was at least a moderate impediment to getting back to work, delaying returns to offices, and possibly discouraging Americans from other activities such as travel.

Meanwhile, other sectors that surged at the beginning of the pandemic, such as the auto industry and e-commerce, two key sources of ad revenue for Facebook, now seem to be normalizing as the pandemic-related favorable factors they enjoyed begin to subside.

Separately, the company said it is actively removing pro-Taliban content, although the question of what and how to ban it on the platform has been a tricky one in the past. For example, the Washington Post reported that members of the Taliban used WhatsApp to send messages to Afghan citizens, and these incidents could be an eyesore for Facebook if they continue.

Yesterday's 2 percent drop in Facebook stock should not change investors' opinions of the company, as such fluctuations are normal, especially given the news about retail sales and the sell-off in the market as a whole. In addition, the company came out with an outstanding earnings report in the second quarter and is likely to perform well in the third quarter since it went through a boycott period last year.

This development is a reminder that Facebook faces some political risk, so investors may want to pay attention to how the company is handling the situation in Afghanistan.