Are Facebook Shares Worth Buying Yet? Probably Not.
Since their IPO Facebook has had a torrid time, with their stock price halving from that initial flotation valuation. You would think therefore that with the shares at such a low price that they would now represent a bargain. Financial magazine Barron's thinks otherwise however, suggesting that there is still some way for the shares to fall.
While the shares closed on Friday at $22.86, Barron's believes that the true valuation of the company is just $15. There were a number of reasons behind their belief.
Firstly, they looked at the Price Earnings ratio, which is currently 48, with a projected PE of 36 on 2013 earnings. Google and Apple, meanwhile, trade on a PE of just 16.
It's a similar picture when looking at revenue, as they're currently trading at 10x their revenue. That's twice what Google is currently valued at.
Facebook is also continuing to struggle with mobile monetization, and the response from senior management has been far from convincing that they know how to turn this around, especially with research suggesting that 40% of mobile ad clicks are either mistakes or fraudulent.
Mobile remains the key battleground, with mobile access to the site growing globally from 9 to 11%. In America the omens are clear, as more users access the site via mobile than desktop devices now.
They also believe that there are many more insider sales to come, which may depress the stock price still further.
So all in all there isn't really anything ground breaking in the Barron's point of view, yet it's also very hard to argue with their belief that it's hard for a stock to justify such inflated valuations when their basic business model is so in doubt.