You probably heard Facebook went public, today, and a lot of fine, very social people got even richer. Isn’t that nice?
Tech companies are dangerous investments: Many more of them tank miserably than succeed. The internet boom is littered with corpses of companies once touted as bright, shining investments that didn’t even last as long as the flame from a common kitchen match. Hope you didn’t go large on Pets.com or eToys.com or TheGlobe.com or any of the other failed internet IPOs?
In case you haven’t figured it out by now, you, the common investor, are not going to get rich from an IPO: That’s the provenance of venture capitalists and the owners of the company. In fact, if you bought, today, you probably bought Facebook at a high. In the coming weeks and months, interest will likely die down a little and Facebook’s stock price will settle to an appropriate level.
As it stands, now, with a stock price around $38 a share, its price to earnings ratio (P/E) stands at 88. By comparison, Google’s is about 18 and Microsoft’s is about 11. The entire sector of Internet Information Providers has a P/E of only 28.7.
There are a lot of other boring stock numbers I could throw at you, but suffice it to say, it looks like Facebook is a tad overpriced.