Facebook was issued to the public at $38 per share, represents a PE ratio of 100 times. It went up to $42 (10% gain) but closed at near the IPO price. The following trading day, it dropped to $34 (drop of 10%) and opened lower on the third day. Read tis report.
What is happening to the price of Facebook?
At 100 X of earnings, Facebook was clearly over-priced. Apple Computers trade at only 10 X of earnings. On this benchmark, Facebook should be $4 and not $38!
Why did Facebook get issued at such a high price? It is the work of the investment bankers and underwriters. They set a high price and tried to prop up the share at that price. They could not prop up the shares for long, so they started to unload them. Watch the share come down to $20 (my guess)!
What is happening to the price of Facebook?
At 100 X of earnings, Facebook was clearly over-priced. Apple Computers trade at only 10 X of earnings. On this benchmark, Facebook should be $4 and not $38!
Why did Facebook get issued at such a high price? It is the work of the investment bankers and underwriters. They set a high price and tried to prop up the share at that price. They could not prop up the shares for long, so they started to unload them. Watch the share come down to $20 (my guess)!
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