FundExpert: Don't rush to buy Facebook
Brian Dennehy, founder of FundExpert.co.uk founder and managing director of Dennehy Weller, says that investors should not rush in to buy the stock as it floats.
In a report about the technology sector, he explains that investors should not rush in to buy the stock.
He says: “It looks like retail investors won’t be able to buy at launch. Should you rush in once it is floated? At whatever price you can get? No. The markets are very volatile right now, driven by the eurocrisis.”
Dennehy adds: “Remember the lesson of Groupon – they went to a premium of 55% on the first day of trading, and are now 45% below the offer price.”
Facebook is expected to be valued at over $100 billion (£62.7 billion) as a result of its initial public offering which will take place on May 18. On May 15, it raised the IPO price from $28 to $35 per share, to $34 to $38 per share.
There has also been commentary that Apple’s share price is a bubble and concern over its high representation in funds. The report explains that Apple’s share price is definitely not a bubble.
Dennehy says: “Real bubbles only exist in asset classes, not just in single share prices. The bubble prequisites of extreme investor and extreme valuation are also missing.”
He explains that there is not evidence of extreme demand for Apple stock from investors, which should not be confused with high demand for its products.
Dennehy says: “In terms of investor behavior, we see no evidence of extreme demand. Nor is the Apple valuation at extreme levels. Both need to be present for a bubble.”
His caveat is to beware of Apple because it is a big constituent of all funds.
Darius McDermott, managing director of Chelsea Financial Services, says that there have been questions over a bubble forming in technology sector as a result of the market hype surrounding Facebook.
He says: “LinkedIn’s IPO and inflated share price last year made people nervous and Renren, China’s equivalent to Facebook, saw its share price drop dramatically after it went public last year.”
McDermott adds: “I don’t think we will see another bubble. Back then, companies were merely burning through their cash and had little or no earnings to speak