Myth No. 3: Reinvestment will keep Facebook profits low

This could be the biggest myth holding back Facebook stock right now, and it's probably the dumbest, too. I get that investors are highly focused on quarterly results -- which get hit by long-term investment. But long-term investments pay off big time for patient investors.

Just look at Amazon.com (AMZN). Its stock has often been dinged by analysts and investors over the years because CEO Jeff Bezos didn't mind sacrificing short-term profits to fund long-term investments. Yet the stock has more than doubled since 2010.

Like Bezos, Zuckerberg isn't afraid to sacrifice short-term profits to invest. That's refreshing in this age of short-term thinking.

"We're doing what we think will build the best service and business over the long term," Zuckerberg said in the most recent conference call, explaining why higher outlays for servers, data centers and more code writers will weigh on profit margins this year.

Investing for the long term is exactly right move for Facebook, says Vandeventer. He says Facebook's relatively low overhead will turn it into a huge cash-flow machine once the investment tapers off.

At least one sell-side analyst agrees. Investments over the next one or two years "should drive meaningful revenue growth," says Anmuth, at JPMorgan Chase. He thinks sales will grow 49% to $7.6 billion in 2014, compared with $5 billion last year, and earnings per share will rise to 45 cents from 2 cents.

Myth No. 4: Facebook will go out of style

People have been warning about this one for years, but Facebook keeps proving them wrong. Consider a few numbers. Facebook ended 2012 with 1.06 billion users, up 25% for the year. In December, 618 million people a day accessed Facebook on average, a 28% increase. Mobile users grew to 680 million, up 57%.

Sure, upstart social-networking sites like Snapchat might be "cooler," but at this point Facebook's sheer size is what matters most, for two reasons.

First, it's good for advertisers. "As an investor, a billion users and growing is just fine with me," says Landis. And while the parents have arrived, Facebook still skews young, which advertisers love. The average user age is 22.

Second, the sheer size of Facebook creates a "network effect" that makes it hard for people to go to other social-networking sites. All your friends are there, and it would be pain to try to get everyone to migrate elsewhere. "We believe hundreds of millions of users face switching costs that keep them from leaving Facebook," says Morningstar analyst Rick Summer. So he gives Facebook a highly coveted "wide moat" rating -- which means in his view it has the kind of protective moat around its business that Warren Buffett likes to see. Summer has a four-star rating on the stock, Morningstar's second-highest rating.

Myth No. 5: Facebook stock is already too expensive

Facebook is an "emerging growth" company, which means it has only barely turned profitable. Earnings are so low that the most common measure of value, the price-earnings ratio, is not meaningful. Minuscule earnings of just 2 cents a share in 2012 give Facebook a nonsensically high trailing p/e of 1,200. Just ignore people who cite this number.

A better way to look at valuation here is to consider Facebook's stock price compared with its earnings before interest, taxes and accounting adjustments, one measure of cash flow. Facebook trades for 20 times expected 2014 cash flow of $3.8 billion, compared with a multiple of 44 times this measure for LinkedIn (LNKD), and 35 times for Yelp (YELP), says Anmuth, at JPMorgan Chase. Not a value stock by any means. But not expensive, either, compared with companies in similar businesses.

Myth No. 6: This stock should be avoided because the first quarter is always weak

Historically, Facebook has posted slower growth for the first quarter. That might repeat again this year, so it's best to avoid the stock, according to this theory. But if you are a long-term investor, this is no reason to avoid the stock, given all the positive long-term trends in place.

Another cloud over this stock is a May 18 "lockup release" which will free early investors to sell as many as 47 million shares. The stock price could weaken right around the lockup release, though there are no guarantees. Considering Facebook's potential, it probably won't matter much whether you buy it now or on a possible pullback on around mid-May.

Where is Facebook stock going long term? No one knows for sure, but here are two reasonably conservative estimates. Summer, at Morningstar, thinks Facebook will generate $40 billion in annual revenue by 2021. Put Google's current 5.2 sales multiple on that and you get a $208 billion market cap for Facebook. Facebook stock advances 3.3 times to $84.

Landis, at Firsthand Technology Value Fund, thinks there's "no question" Facebook will match Google in market cap at some point, since they're in a similar businesses and Facebook is just as good at it. Google has a market cap of $264 billion; Facebook's market cap would have to advance 4.2 times to get there. This move would send Facebook stock well above $100.

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Either way, owning Facebook will surely beat owning an S&P 500 index fund over that time frame. And if you have investing friends who dislike Facebook right now, you'll have the last laugh.

This article was updated May 15 to reflect the latest share prices and forecasts.

At the time of the update, Michael Brush owned shares of Facebook and had recommended it to readers of his newsletter. Brush is the editor of Brush Up on Stocks, an investment newsletter.