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Facebook Flop? Hardly

Facebook (FB) shares opened at 11:30 EST Friday at a price of $42.05. By midday, they were selling at their $38 initial offering price.

That struck some market watchers as a flop. “If even Facebook can’t have a pop at the open, then should we have faith overall in technology?” asked one CNBC commentator.

By one measure, of course, the offering was as successful as they come. The lack of a big premium for the stock in early trading suggests Facebook insiders did a masterful job of finding the maximum price outsiders were willing to pay for shares.

Investors may see Facebook’s tepid open as a stroke of luck. With shares at $38, the same price privileged investors secured during the offering, even ordinary Joes can still “buy low,” right?

Careful with that thinking. A $38 stock price doesn’t make Facebook a bargain. It values the company at $104 billion. That’s more than 60 times even bullish projections for Facebook’s 2012 profits. The typical large U.S. company sells for around 13 times 2012 earnings forecasts.

Apple recently sold for 11 times earnings and Google, at 14 times earnings.

What’s more, Facebook had traded with heavy volume at exactly $38 a share by midday, but not below it. That suggests the $38 IPO price is being supported by the syndicate of underwriters–that they’re stepping up to buy at that price, in order to prevent shares from trading lower.

Such support won’t last forever. Facebook fans should probably hold out for a better price.


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