Now it has the largest advertiser pulling from its site: General Motors. In addition, the number of insiders selling their stakes in Facebook is extremely large, a big warning sign when doing stock analysis.
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New York, NY (PRWEB) June 30, 2012
In a recent Investment Contrarians article, editor Sasha Cekerevac points out that the key to long-term success in investing is allowing only small mistakes and avoiding the large investor mistakes that most people make. Before the Facebook initial product offering (IPO), Cekerevac announced that he believes this IPO was one such large mistake that could have been avoided if investors did a proper analysis instead of believing the hype.
“Facebook’s valuation is extremely stretched to begin with on any stock analysis metric,” comments Cekerevac. “Now it has the largest advertiser pulling from its site: General Motors. In addition, the number of insiders selling their stakes in Facebook is extremely large, a big warning sign when doing stock analysis. Most of the early investors have increased their allocation to be sold at the IPO.”
Valuing the company at current levels is extremely expensive. Facebook opened trading at approximately 100 times earnings and 28 times sales. Apple is a bargain in comparison at only 10 times earnings and three times sales, not to mention $100 billion in cash. All the while, Facebook is still unproven, in Cekerevac’s opinion.
“One of the biggest investor mistakes is buying a stock simply because you like the company,” believes Cekerevac.
Cekerevac continues, saying that many new investors make the mistake of following the hype of the crowd. He warns that new investors should take a step back and perform a thorough stock analysis first that looks out over five to 10 years—a difficult task when evaluating Facebook.
While there is a significant business for Facebook, a valuation for this business must be created through stock analysis, and as Cekerevac points out, Facebook lacks a trading history and long-term stability of earnings visibility. Facebook has a lot of members, but it also has a questionable rate of monetization, he says.
“The company needs to massively increase its corporate earnings to match the current valuation. Basically the stock is priced to perfection,” notes Cekerevac. “With a lock-up period in 90 days when more shares will be sold, I would wait out this period and see how the market reacts before making a decision.”
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.