Does anyone really know what
? How about
Best Buy (
I saw an article yesterday from a supposed "valuation guru"
(he's a professor who wrote a book on investment valuation) who
said he would buy Facebook at $18. OK, fair enough.
But this "expert" (remember, he wrote a book) also said that
was fairly priced at $38 in mid-May. In fact, he called it "a
But a week later, he lowered his valuation to $29 per share.
And earlier this week he dropped it again to $23.94 and
proclaimed he was a buyer at $18.
That's a lot of switching in just three months. And remember,
this guy wrote a book.
It reminds me of the old Robin Williams routine about Muammar
Gaddafi: "This is the line of death. You cross it, you die …
Okay, you cross this line, you die … Okay, you cross this line,
you die ... This line, you die … Okay, you're knocking on my
door, I'm not coming out. Naaaaah."
My point is not to quibble with these lowered estimates. Hey,
everyone is entitled to change their mind. That's what makes the
markets so fascinating, if not maddening.
My point is … why would anyone, beyond pure speculators and/or
thrill seekers, step in to buy Facebook now? For that matter, why
would anyone short Facebook right now?
Peter Lynch, the legendary Fidelity mutual fund manager, used
to say, "Invest in what you know." He also said to not bottom
fish (consider that a bonus piece of advice).
Does anyone really know Facebook? Sure, everyone knows what it
is. Sure, it has hundreds of millions of users. Sure, Mark
Zuckerberg and his entourage were brilliant in conceiving the
company. But do you have faith that they know how to run a public
What is the business model? How does it make money? How will
it sustain growth? There's never been anything like it in the
corporate world, so how can anyone say what it's worth after just
three months in the public eye?
If a reputed valuation expert changes his assessment of the
company three times in three months, how can you or I possibly
know where this company is headed? I'm not ashamed to admit it -
I have absolutely no clue.
The point is that we simply do not know much about this
company other than it's a phenomenon that's just getting started,
had a horribly
, and disappointed in its recent
. And insiders are selling like mad after the
Of course, that doesn't stop dozens of analysts from
projecting the company's worth. The Street.com said they'd
be a buyer at $13. Our valuation expert says $18. An article on
Seeking Alpha pegs the value at $60 billion, which translates to
So who should you believe? Peter Lynch. You don't know
Facebook. So resist temptation and stay away from the stock,
regardless of whether you think it's undervalued or
What about Best Buy? Is now a time to buy?
Unlike Facebook, Best Buy is a company we know about. And it's
in trouble. Big trouble.
Here's the tale of the tape: Net income fell 91% from a year
ago. Excluding items, profits came in at 20 cents per share. The
consensus analyst estimate called for 31 cents.
Quarter-over-quarter same-store sales dropped 3.2%.
But honestly, should anyone be surprised? The only time I go
to a Best Buy - other than to pick up a … hmmm … come to think of
it, I never buy anything there - is to check out something I plan
to buy online. I doubt I'm alone.
The stark truth is that Best Buy has little reason to exist.
They devote a good deal of space to music CDs. Really? Does
anyone buy those anymore? In a store? Maybe they should try
selling 35mm film. In color.
But seriously, why does Best Buy stay in business?
Occasionally they'll run a super sale that competes with the
Amazons of the world. Very occasionally. Or maybe you need
something right away. But you'll pay a hefty premium for that
I don't really need to bash the company any more. The poor
souls are having a rough enough time. All I'll say is that the
stock has been dropping like a rock since November 2010 to the
tune of about 60%. And there's no bottom in site … well, there is
zero, I suppose. In fact, the shares are now toying with their
November 2008 low (that's when everything cratered).
Actually, the shares finished well off their lows yesterday,
meaning that some buyers stepped in to support the stock. Does
that mean you should also step in since the stock is so
Absolutely not. What is Best Buy worth? How do you place a
value on a company whose business model is fast becoming
obsolete? Simple answer - you don't.
You know the phrase about catching a falling knife? This stock
is a falling battle ax. The company has nothing going for it and
their financial numbers are horrible.
Stay away. No bottom feeding here.