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Buy, Sell or Hold: When to Buy Shares of Facebook

You might have heard....

Facebook Inc. (NYSE: FB) is the most awaited initial public offering (IPO) since Google Inc. (Nasdaq: GOOG).

The recent registration of the company's IPO documents means it won't be long until Facebook shares begin trading freely.

But will Facebook shares make you rich beyond your wildest dreams like mural painter David Choe?

Or would you be better off watching from the sidelines before you buy shares of the social media giant?

The Details behind the Facebook IPO

Here's what I've learned from Facebook's S-1.

Some of the data points buried in the IPO document are eye-opening, to say the least.

Chief among those are Facebook's assertion that 6% to 7% of the entire world population logs in every day. More importantly, they stay logged in for a significant amount of time.

However, what will happen in the future to drive the stock's share price after it's brought to market is buried deeper in the details.

It's these details that make Facebook's IPO a hold if you already own shares, but also a "wait to buy" if you are like most people and want to own them.

In a nutshell, what I've learned is the banks are bringing Facebook to market fully priced.

My opinion is the bankers have gotten greedy and decided to push the valuation numbers above the levels that I believe are sustainable.

The company is being valued at $75 billion - $100 billion dollars at launch. This would make it one of the most valuable companies in the world, yet its actual revenue, let alone profitability, is at a more mundane level.

Currently, Facebook is reporting about $4 billion in revenue and profits of $1 billion.

That means if Facebook prices in at the top of its estimated range ($100 billion), based on current disclosures it would have a 100-to-1 price to earnings (P/E) ratio.

In other words, it's only going to take about 100 years for Facebook to eventually earn what it may price at. Compared to other blockbuster stocks, that's quite rich.

By comparison, Apple Inc. (Nasdaq: AAPL) has $100 billion in cash and a P/E ratio of 11 while Google's P/E is 20.

That's why it's time to "Hold" Facebook (**) or wait to buy it until insiders get a chance to sell their shares and bring the price down to levels common people can realistically afford to purchase.

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