Facebook stock topples: Is now the time to buy?

Facebook, Inc. fell below $19, which is half its IPO price. It later recovered to $20.01. There are some issues at Facebook with many lawsuits from dissatisfied shareholders. Some reports say investors who were locked out from buying during the public offering can now purchase shares significantly below $38 a share. The expiration of the lockout last Thursday boosted investors and insiders to sell.

There's certainly a compelling reason to think about Facebook at or around $20 a share. Investors who have long been blocked out of initial public offerings, as shares are doled out to wealthy clients of investment banks, have a shot at sweet revenge. Given how poorly Facebook has done since its IPO, investors could buy shares now at well below the $38 a share offering price, according to USA Today.

Is now the time to buy? Yes and no, depending on who you want to believe.

The bears—the people who say “no”—are cautious because they believe Facebook is going to fall further. Francis Gaskins, an IPO analyst at IPOdesktop.com believes investors should wait because it’s going to fall to as low as $15. He cites the company's valuation and slowing growth as reasons why the stock, even in the $20s, isn't a good buy. Facebook trades for 73 times its diluted earnings per share before extraordinary items, S&P Capital IQ says. “That's well above the valuation of Google, which trades at a price-to-earnings ratio of 19 on the same basis.”

The bulls—the people who say “yes”— 14 Wall Street analysts rate Facebook as a strong buy or buy according to Nasdaq.com. At the same time 12 rate the stock a hold with only one saying to sell.

Bullish analysts say that investors are too focused on the short-term challenges facing Facebook. Victor Anthony, analyst at Topeka Capital Markets, rates Facebook stock a buy and has a price target of $36 for the stock at the end of 2012.

Facebook’s potential for growth

If you are willing to hold on to your Facebook stock for a few years, here are some growth potentials to consider. (My grandson’s stock has at least 16 years to grow before he needs it for college.)

The numbers from Business Community.com certainly support this:

• Since 2010, the number of Facebook users in India has risen meteorically from 8 to 50 million! With the growing number of people there using smartphones, the number will continue to rise. India’s population stands at 1.2 billion- HUGE room for growth for Facebook.
• Africa is the fastest growing mobile market in the world
• Only 20% of people living in third world countries use the Internet. As that percentage grows, so does the possibility of a great percentage of them joining Facebook- meaning more ads, more revenue for Facebook.
• Advertisers in India have increased Facebook ad spending by 40% over the last couple of years. As more and more people join, it’s reasonable to expect more advertising dollars to be spent. And finally…
• Sponsored Stories accounts for $1 million in daily revenue- with expansion around the globe, it would seem that that figure will rise steadily.

Resources

http://www.usatoday.com/money/perfi/columnist/krantz/story/2012-08-15/facebook-stock/57079526/1

http://www.business2community.com/facebook/taking-stock-of-facebooks-potential-growth-0254822#PZjsF0xSSoXZP2FO.99

http://www.business2community.com/facebook/taking-stock-of-facebooks-potential-growth-0254822