Facebook's IPO day
(Credit: Sarah Tew)
Social media enthusiasts with eyes on the stock market bought into Facebook's initial public offering May 18. Now, those who clung to the stock are wondering: When will shares of Facebook climb back to their IPO price of $38 a share?
My answer: About 32 quarters -- or eight years.
Here's why:
I did an analysis on Aug. 1, when Facebook closed at $20.88 a share. That's right about where the stock is currently trading. This puts Facebook's price-to-earnings ratio based on the last 12 months (LTM) earnings at 72.4.
I compared this to the median P/E -- also based on the last 12 months of earnings -- of Apple, Yahoo, Microsoft, Google and LinkedIn, a composite of tech leaders. Apple and Google have proven revenue growth stories, and LinkedIn (like Facebook) is a newcomer as a reference point. Like Facebook, Yahoo has a huge user base and struggles with the amount of revenue it makes off of each user. For this composite of tech leaders, the median P/E ratio is 18. So let's use a P/E of 18 as a benchmark.
That's when I arrived at our first piece of sobering news: If Facebook were valued comparably to this group on a P/E basis, its stock would be $5.22 a share, not $20.88.
- Facebook's earnings-per-share will grow at 26.2 percent per year, which is the projection from ... [Read more]
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