Facebook Inc (NASDAQ:FB) may have surpassed its proper valuation, according to Aswath Damodaran, a finance professor at NYU Stern. Sam Ro of Business Insider reports that Damodaran has been following the social network’s valuation since its initial public offering last May. His blog posts have included regular updates about the company’s valuation, and in the wake of Facebook’s recent stock rally, he thinks it might be time to sell.
What’s Facebook worth?
Shares of Facebook Inc (NASDAQ:FB) skyrocketed after the company’s last earnings report, turning it into a Wall Street darling and transforming mobile ad doubters into believers. Investment into the social network has been fraught with problems from the very first day. The company’s stock finally hit its IPO price of $38 per share this week—the first time since the stock debuted. It still has yet to reach its high opening value of $45 per share, a value it hasn’t hit since the first day of trading.
Third Point's Dan Loeb discusses their new positions in a letter to investor reviewed by ValueWalk. Stay tuned for more coverage. Loeb notes some new purchases as follows: Third Point’s investment in Grab is an excellent example of our ability to “lifecycle invest” by being a thought and financial partner from growth capital stages to Read More
In August of last year, Damodaran’s valuation of Facebook Inc (NASDAQ:FB) was $23.94 per share, and he speculated at that time that it wasn’t a buy yet. He set a limit buy order for $18 per share, which was triggered a couple of weeks later when the stock hit rock bottom.
Fast-forward to Facebook today
He now believes that Wall Street is overreacting to what he calls “limited news from an earnings report.” It makes sense because of the knee-jerk reaction investors had to the company’s mobile ad revenue. He said thinks it’s time to sell his shares, although he doesn’t think shorting the stock is a good idea.
He believes that Facebook Inc (NASDAQ:FB) now has momentum going for it which might continue to carry it upward. He notes that many investors might be pulled into the stock as it surpasses the $38 per share price, although he said “there is really no economic or value significance around the number.
Damodaran’s updated model places an intrinsic value of $27.65 per share on Facebook, showing that he aligns with those who view the stock as overvalued. Facebook shares dropped 2 percent during regular trading on Wednesday to close just under $37 per share, but it gained 1 percent in premarket trading to begin approaching the $38 per share mark yet again.