Should I buy Facebook?-Video + Text

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Should I buy Facebook?



Investors left out of the Facebook IPO are getting a second chance, but some might question if they even want it.

Richard Drew, AP


Sponsored LinksMania over shares of the No. 1 social-networking company quickly turned to skepticism Friday. Shares barely budged from their initial public offering price of $38 and closed at $38.23 on the first day of trading.

The lackluster opening means individual investors can buy Facebook stock at the same price shares were offered to privileged investors. Investors who piled in the first day lost as much as 15% in just a few hours.


Many analysts are suggesting that investors resist the urge to jump in.

"I would not touch this," says Josef Schuster of IPOX Schuster. "Facebook's (stock) trend is to the downside."

Even though investors can get a crack at owning Facebook at essentially the IPO price, they should take a pass because:

•Weak first day. The IPO's tepid debut breaks confidence in the stock, just as it needs it. Investors will now focus on the company's earnings growth, already showing signs of weakening, says Francis Gaskins of IPOdesktop.com.

The biggest IPO after Facebook, General Motors, ran into similar weakness in its debut and was never able to shake it off. GM rose 3.6% on its first day of trading in 2010, but since has fallen nearly 38% from its first-day close.

•Lofty valuation. Facebook is trading for more than 100 times its 2011 earnings. That's well above the Google's P-E of 18. Stocks with such high valuations and unproven business models such as Facebook tend to disappoint as they cannot keep up with expectations, says Robert Maltbie of Singular Research.

•Broad market struggles. Volatility in Facebook's stock will be exacerbated by the stock market's struggles as investors avoid added risk, Schuster says. Stocks are down 5% over the past 10 trading days on concerns about Europe and Asia.

•Individual investor dogpile. Mania-level interest in Facebook by individual investors shows just how hyped, and overvalued, the stock is, Gaskins says. Trading in Facebook accounted for 22% of volume at top broker TD Ameritrade, says the large brokerage's Steve Quirk.

Patient investors still interested in Facebook will get another chance to buy, at a lower price, Gaskins says. Investors should avoid the stock until it hits roughly $20, Gaskins says. Schuster says the stock deserves a closer look at $31 a share.

"Don't invest in Facebook right now," says Larry Chiagouris, professor of marketing at Pace University. "Let it seek its own level, which isn't where it is now."


Source: www.usatoday.com