I'm thinking of getting in near $40 per share. Do you think that's a good buy?
Jim - it's a personal investment decision consider your approach to investing (value/growth, etc) and your willingness to accept volatility. As a value-oriented adviser, my advice to clients would be to pass on Facebook for now. The P/E ratio based on trailing twelve month earnings is roughly 95 at $45 per share. While not a perfect comparsion, Apple has a trailing P/E of roughly 13 and Google of 19, both of which have proven business models. Facebook's revenue model isn't fully proven and losing a client like GM earlier this week suggests there are still issues to resolved regarding revenue sustainability.
No one can be sure if Facebook will be the next Microsoft or Novell. There is one thing for certain, there is a lot more risk in individual securities, than in a diversified basket of securities like the S&P 500 (large cap stocks), or the Russell 2000 (small cap stocks). It will likely take Facebook a long time to get to a price that is reasonable based on any metric.
Prudent investors, like most institutions, diversify their holding to minimize downside volatility. Based on historical data, you should expect to make something like 9-12% year-on-year returns on a diversified stock portfolio over a long period (measured in decades). At 10% an investment should double every 7 years using the rule of 72 (return divided by 72). This would be a great return.
Now that the prudence discussion is out of the way, if you feel like gambling, if you don’t mind losing money, you may want to buy Facebook on a downbeat of say 10% or more.
Wow Jim, you've hit on the issue of the day/week/month! I've had a few clients show interest in this stock from a more speculative standpoint versus a longer term buy and hold perspective. The best way most analysts breakdown the value of a stock falls into a revenue analysis and growth projections. Facebook might have a fairly substantial opportunity to grow but I would not recommend this stock at this point without knowing much more about the valuation of the company. However, many people will end up owning the stock through mutual funds that will likely either chose or be required to buy this stock. Many index funds will need to own Facebook since it has a very large market capitalization.