Is Facebook a Bargain? Analyst Says Yes

Mark Zuckerberg, CEO of Facebook, center, Sheryl Sandberg, COO, center left, and Robert Greifeld, CEO of Nasdaq OMX Group, center right, on IPO day on May 18, 2012.
Zef Nikolia | Facebook | Getty Images
Mark Zuckerberg, CEO of Facebook, center, Sheryl Sandberg, COO, center left, and Robert Greifeld, CEO of Nasdaq OMX Group, center right, on IPO day on May 18, 2012.

Facebook shares have not made a lot of friends lately. The shares have dropped 8 percent in a week, and the stock is down almost 30 percent from its January high. So has the stock simply gotten too cheap not to buy?

Scott Kessler thinks so. He covers Facebook for S&P Capital IQ, and on Wednesday afternoon, he upgraded Facebook to "buy" from "hold," slapping a $33 price target on the stock.

BMO Capital Markets and Jefferies also have upgraded Facebook, respectively, to "outperform" and "buy."

"The bottom line is that the fundamentals are pretty darn strong, and we think the valuation has gotten pretty attractive as the stock has declined," Kessler told CNBC.com in a telephone interview.

(Read More: Nasdaq Hit With $10 Million Fine for Facebook IPO)

Kessler believes that Facebook will benefit from several innovations that the market hasn't yet been given an opportunity to understand. "Facebook has acquired Instagram, launched Gifts, launched Graph Search, and launched Home," he noted. "All of those were pretty significant, but when the company was asked or was presented with the opportunity, they indicated that they don't have significant plans to look to monetize those four properties or offerings."

However, Kessler is willing to give Facebook some time. "When it comes to these newer properties and offerings, our view is that it's OK if the company takes time to build them and refine them and get them to critical mass."

In addition, Facebook's strong balance sheet gives the company "a lot of financial flexibility," Kessler said. "They can look at acquisitions, and they can look at substantial investments. Some of their competitors cannot do that."

But Kessler says the stock's drop is "the key."

"The stock is trading at a pretty high multiple," Kessler admitted, "but Facebook trades on par with their peers, in terms of 2013 price-to-earnings ratio, and it also has a comparable growth rate. We think that they should be trading at a premium to peers, given its significant global brand, reach and market position. In addition, they are just starting the process of monetizing a number of different areas."

On the other hand, Mike Khouw of DASH Financial thinks that paradoxically, Facebook's slide could further burden the stock.

"The stock has traded so heavy," Khouw said. "There are still a lot of hands that have had just about all they can take."

Worse, he said, not even a low valuation will necessarily persuade people to buy Facebook shares.

(Read More: No Waze for Facebook as Talks End: Report

"I don't think investors view Facebook as such a hot story," Khouw said. "Even if it becomes a good fundamental value, that's not in itself a good reason to hop on."

— By CNBC's Alex Rosenberg Follow him on Twitter: @CNBCOptions

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