Facebook’s stock price hit yet another low on Friday and is now trading more than 50 percent below its IPO price of $38. At the current price many investors may begin feeling tempted to buy Facebook stock on the cheap. But is Facebook’s stock really a bargain?
At its current valuation, Facebook’s price to earnings ratio is 62.5. Compared to Google’s 20.3 and Apple’s 15.6, a P/E ration of 62.5 doesn’t look cheap, especially when considering the fact that Apple outgrew Facebook in the first six months of 2012.
On the other hand, the price to earnings ratios of Amazon and LinkedIn are much higher than Facebook’s, but that can be explained: Amazon’s earnings are currently down as the company invests heavily in future growth, but it is safely assumed that the e-commerce giant will be immensely profitable in the future. LinkedIn is currently growing more than twice as quickly as Facebook is. Moreover, LinkedIn has three substantial revenue streams, while Facebook is still largely depending on advertising.
Facebook Stock Still No Bargain for Investors
