Facebook’s stock has crashed since it was priced at $38 for its IPO. It’s trading at $21 a share right now.
If all the smart institutional investors were willing to dive in at $38 a share, then at $21 a share it has to be a screaming buy, right? Not necessarily. The stock is still overvalued, argues our own Henry Blodget.
He compared Facebook’s PE ratio based on 2013 earnings estimates to Amazon’s, Google’s, Apple’s, and a few other tech companies. As you can see, Facebook’s PE ratio is higher everyone other than LinkedIn and Amazon.
That makes sense, because Facebook is a young, growing company, right? Wrong again!
Facebook’s growth is decelerating, its business appears to be maturing, the transition to mobile is hurting it, and profit margins are shrinking, says Blodget.
For those reasons, you can argue Facebook is still overpriced.
(But what about Amazon and LinkedIn? Amazon’s earnings have been knocked down as it invests to boost sales. Down the road, Amazon’s earnings growth is expected to return. As for LinkedIn, it is growing like a weed compared to Facebook.)
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