Keith Fitz-Gerald,
Chief Investment Strategist, Money
Morning has run the numbers and says Facebook is really worth only about $7.50 per share, not its $38
IPO price or its current price under $30 (off nearly 25%). See http://online.wsj.com/article/BT-CO-20120529-713253.html
How does Fitz-Gerald arrive at his $7.50
figure?
As my good friend
Barry Ritholtz pointed out recently, both Apple
(Nasdaq: AAPL) and Google (Nasdaq: GOOG) debuted at about 15 times earnings.
Today they trade at 13.6 and 18.2 times earnings and 3.75 and 4.9 times sales
respectively. As I type, Facebook's
market cap is $86.84 billion and its price to sales is ridiculously high at
21.01. I think that's way out of line.
So what should the
numbers be?
Try this on for size.
If we use Google's price to sales ratio of 4.9 (and I am being generous here
for discussion purposes), that equals a total market cap of $20.24 billion or 76.68% lower than where it's trading
today. With 2.74 billion shares outstanding, that's equal to only $7.39-$7.50
per share.
Read Fitz-Gerald’s complete analysis here:
http://econintersect.com/b2evolution/blog3.php/2012/05/29/facebook-top-valuation-should-be-7-50
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