Tags: Hulbert | Facebook | Twitter | IPO

Hulbert: Facebook and Twitter May Have a Lot Further to Fall

By    |   Monday, 14 April 2014 10:03 AM

Since March 1, Twitter shares have dropped 27 percent and Facebook has slid 15 percent.

And the selling may only have begun, says Mark Hulbert, editor of the Hulbert Financial Digest.

A well-known valuation formula utilizes sales growth to predict share prices five years after a company's initial public offering (IPO), he explains in The Wall Street Journal.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

The formula is based on estimates of how much a company's revenue will expand over the five-year period and what its price-sales ratio will be.

Company sales on average grow a real 212 percent during their first five years, according to a study by Jay Ritter of the University of Florida and Martin Kenney and Donald Patton of the University of California, Davis, Hulbert writes.

Meanwhile, the median price-sales ratio was 5.87 for five-year-old stocks in the Dow Jones U.S. Internet Index, according to FactSet.

So to project a stock's price five years after the IPO, multiply the company's sales per share in the year before going public by 2.12 and multiply that by the price-sales ratio of 5.87, Hulbert says.

That calculation would leave Twitter down another 43 percent by November 2018 and Facebook down another 50 percent by May 2017.

"How can Twitter and Facebook escape these awful fates? Either their sales will have to rise faster than average, or their price/sales ratio will have to be higher," Hulbert notes.

Twitter shares closed at $40.05 Friday and Facebook at $58.53. Morningstar analyst Rick Summer puts fair value for Twitter at $28 and for Facebook at $45. The stocks would have to fall 30 percent in Twitter's case and 23 percent in Facebook's to reach those levels.

Both stocks have climbed 54 percent from their IPO levels.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

© 2021 Newsmax Finance. All rights reserved.


InvestingAnalysis
Since March 1, Twitter shares have dropped 27 percent and Facebook has slid 15 percent. And the selling may only have begun, says Mark Hulbert, editor of the Hulbert Financial Digest.
Hulbert, Facebook, Twitter, IPO
307
2014-03-14
Monday, 14 April 2014 10:03 AM
Newsmax Media, Inc.
 
Newsmax TV Live
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved