“In the short run the market is a voting machine, and in the long run it is a weighing machine.”
-Benjamin Graham, regarded as the father of security analysis
With the FB IPO imminent, investor frenzy continues to grow. Given all of this interest, the stock may be a short term trading winner. Over the long haul, the IPO valuation does not leave a lot of room for investors.
That sentiment is reflected in the well known Graham quote — as far as emotional in the minute voting goes, the stock could see a hefty pop from the IPO price of $32. Consider this about the frenzy: Private investors who bought in during the last round paid 25% more than the IPO price.
That doesn’t mean this won’t bounce on the IPO. I cannot predict the madness of the multitudes, but a 30, 40, even 50% pop on the opening is not unthinkable.
There are a universe of fund managers I expect will have to own this. Despite the simple fact that at the IPO price of $32, FB stock will be 6 times as expensive as Google (GOOG), and 8 times what Apple (AAPL) shares cost.
“Despite all the excitement, investors would do well to skip the deal. Facebook’s shares will be richly priced, both in absolute terms and relative to the stocks of established growth companies Google (GOOG) and Apple (AAPL), as Barron’s argued in February when Facebook filed for its IPO (“At Long Last Facebook,” Feb. 6).
If the deal is priced at $35, Facebook will be valued at around 70 times projected 2012 earnings of 50 cents a share and 18 times estimated revenue of $5 billion.
In contrast, Google, at $610, trades for less than 15 times 2012 profit estimates and under six times revenue. At $570, Apple shares have a 2012 P/E of just 12 and the company’s sales have been growing more rapidly than Facebook’s despite a revenue base that is 40 times larger. The effective P/Es on Google and Apple are even lower when factoring in their huge cash hoards. Facebook also will have plenty of cash—an estimated $9 billion—after its IPO.”
I wonder: Who is doing all the clamoring for this stock: Mon & Pop oon main street, or finance pros (term used loosely) who want a piece of FB?
We will find out soon enough . . .
Mad About Facebook!
Barron’s May 12, 2012
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