Well there certainly seems to be an awful lot of chatter about the pending IPO (initial public offering) of Facebook’s stock. First and foremost please know that as of the writing of this post the IPO has not even occurred. The IPO is scheduled for the week of May 14th.
Currently the offering price talk is $28- $35 per share. It has been reported to be “over-subscribed” which simply means there are plenty of folks, institutions and individuals, who would love to buy the stock at the offering price. Trust me everyone who wants to buy it at the offering price will not get it. I suspect that if you are one of the lucky folks to get it at the offering price you stand a better than average chance of turning a profit. For everyone else here is my advice:
Just wait and see how this company and its stock do after it starts trading for a few days or weeks. Based on its current earnings estimates the offering price is about 99 times its earnings. Which in financial jargon means it has a P/E ratio (price to earnings) of 99x. Historically not cheap. Apparently from the analysis that I have read Facebook’s profit growth is slowing not accelerating, not good for a company with a 99x multiple. I am not bashing Facebook here, many companies have shown the ability to adapt their business model and Facebook may well be able to do just that.
My approach here is to remain cautiously optimistic and if the stock presents an agreeable entry point then perhaps an investment can be made, but it strikes me that at this offering price you are not getting a great bargain and if the stock does rise after the offering it’s even less of a bargain. I just do not see the need to rush in and buy anything, ever, Facebook included.
Doug Hendee, CFP®
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).