Facebook (NASDAQ:FB), the giant in the social networking arena has fetched gigantic gains on the bourses over the last three months. The stock has gained close to 90% in the last three months. Bulldozing the bears out of its way with every passing day, the stock price hit a new peak of $ 44.79 in the last trading session before closing at $44.04. This is the third peak the stock has hit in as many days, throwing up questions like, ‘Is the stock really worth all this noise?’ Not too long ago, the Facebook IPO had been drubbed as one of the biggest IPO flops in the history of technology companies, and today it seems to be the darling stock of wall street. A lot has been written about what the second quarter results mean to the fortunes of the company, about how the company has tamed the BIG unknown animal called ‘mobile users.’ Only a year ago the company’s inability to leverage its fast growing mobile user base had caused the stock to tank post- IPO with the price falling 50% lower than its IPO price. The stock has blazed its way to new highs, but what every investor needs to remember is that, a stock which climbs too fast isn’t far from a fall. The current numbers supporting the stock’s high price aren’t too supportive. The stock currently trades at an earnings multiple of 166 which is very high by any standards. Looking at the short term prospects the stock is due for a correction in its stock price, with the current stock price well above its 200 day, 50 day as well as 14 day moving averages. We do not undermine the importance of the company finally finding a solution to its mobile user base problem, but to buy the stock at its current levels will amount to nothing more than a risky bet.
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