Let's face it
Everything from a shocking acquisition, to the turbulent initial public offering, to concerns over the company's ability to grow revenue have contributed to the stock's price volatility. Shares are down 26% from its $38 IPO price. Unfortunately, I still think the stock is inflated at today's price of about $29 a pop.Â Â
From an investment standpoint, Facebook commands a sky-high P/E relative to industry peers like Apple (NAS: AAPL ) and Google. To really drive the point home, CNBC dressed up Facebook with multiples from other tech companies to illustrate how the shares would trade at different valuations.Â Â
Facebook's price at comparable P/E ratios
Sources: CNBC and S&P Capital IQ.
This is telling, especially for investors who are thinking about buying Facebook on its recent dip. This I wouldn't advise, as I think the stock has farther to fall. It's now clear that much of Facebook's valuation ahead of its offering was based on hype. The social network's IPO uh-oh included technical difficulties at the exchange, as well as a selective disclosure about earnings made by Morgan Stanley ahead of the offering -- keeping small investors out of the loop. Perhaps this wouldn't have been such a big deal had the share price held up. But Facebook isn't the only tech stock to stumble after going public.Â
Shares of Zynga currently trade at $5.98 a share, down from their December IPO price of $10. Groupon is in a similar boat, with its stock having lost more than 46% of its value year to date. The daily-deals site lost investor confidence earlier this year after not one, but two major accounting mishaps . All of these cases demonstrate why it's better to wait for the IPO hype to die down before jumping into a position, even if you're an avid fan of the company's products or services.
While we wait for Facebook to cool off, there are plenty of other attractive options in the social-media space. On a valuation basis, both SINA (NAS: SINA ) and Renren (NAS: RENN ) look like better stocks. These Chinese companies offer investors an opportunity to tap into the world's largest Internet market.
According to online database Finviz.com, Online portal SINA keeps a P/E of 15 and currently sells for about $53 a share. That's not bad for a Web-based media company that's expected to grow earnings per share next year by more than 635%. Meanwhile, the godfather of social networking in China, Renren, has a higher P/E of 45 and currently trades at $4.74 a share. While neither of these stocks is immune to the strict regulations imposed by Chinese government, both offer superior valuations to Facebook along with the promise of serious growth to come. Â
The future of Facebook
If you still want to own a piece of Facebook, you need to be in it for the long run. Despite the social network's turbulent start as a publicly traded company, I think over the long term this will be a very successful story. I'm hopeful that down the road Facebook can grow revenue, although the real question remains: at what cost? Mark Zuckerberg's sudden shopping splurge on Instagram should be a warning to all.
Just how low our beloved social network will go remains to be told. However, if shares tumble closer to the $20 mark, I'm buying for keeps. And maybe you're not yet ready to jump into the global social-media stocks I've recommended here. That's understandable, as some unfortunate tech investors are still recovering from money lost in Facebook's IPO. Instead, I invite you to discover a hidden social-media gem with a business model that just keeps winning. Get a free report from The Motley Fool, titled "Forget Facebook -- Here's the Tech IPO You Should Be Buying."
At the time this article was published Fool contributor Tamara Rutter owns shares of Apple and Zynga. Follow her on Twitter , where she uses the handle @TamaraRutter , for more Foolish insights and investing advice. The Motley Fool owns shares of Facebook and Apple.Â Motley Fool newsletter services Â have recommended buying shares of Apple and SINA and creating a bull call spread position in Apple. The Motley Fool has aÂ disclosure policy . We Fools don't all hold the same opinions, but we all believe thatÂ considering a diverse range of insights Â makes us better investors. Try any of our Foolish newsletter servicesÂ free for 30 days .
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