Is Facebook Stock Overpriced? Will that Stop You from Buying?

Is Facebook Overpriced?

Got a hot tip for you: how about a great stock that’s trading at about 100 times earnings? Too high, you say?

I know it’s way higher than today’s Russell 200 P/E ratio of 34.48, but how about if the company’s name was Facebook?

At Friday’s IPO, Facebook will be valued at about 100 times its current profit, meaning that it is tremendously overvalued.

OK, OK, you’ll tell me how its got 900 million users, but with only $3.7 billion of revenue (85% of which is advertising), it is hard to see how the strike price of $38 a share can be justified.

Facebook boosted the offering’s price range week, indicating a market value as high as $104 billion. Existing holders will offer 241.2 million shares, bringing the total on offer to 421.2 million.

Investors will be looking to Facebook for additional streams of revenue beyond its current style of advertising. That will be difficult however, given its pledge to keep Facebook free for its users.

However, one thing is for sure, given the oversubscription of this IPO, the insiders and early buyers will be marching to bank with their billions.