Over the next few months when about 2 billion Facebook Inc (NASDAQ:FB) shares become available for sale, on release of a lock-in, swamping the market the company’s stock will be battered further, scotching any chances of a follow on offering of shares.
There are signs that inside investors would prefer to sell off their holdings rather than freeze on to them as the company seems to be unable to evoke any cheering sentiments.
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The stock has dipped close to 50 percent since its debut in May at $38 a share, in an over-hyped IPO. It is sometimes the norm for companies on a fast-growth mode to go in for a secondary offering of shares but in the present instance, with investors preferring to dump the shares rather than buy them there seems to be little likelihood of it.
The company had devised the strategy of a timed release of shares in order to avoid too much of its stock flooding the market at that time. However the release of the lock-in could not have come at a worse time for the stock.
Analysts expect that the stock could suffer from the effects of this excess liquidity for up to a year.
In fact prior to the stock's free fall, founder Mark Zuckerberg along with 12 other insider investors had sold over 240 million shares for a value worth $9.8 billion. The investors who bought them have about $5 billion of that worth wiped out in the subsequent carnage that has followed.
Any chances of investors recouping their losses will depend on the company charts its future strategy of growth. Analysts have forecast a share price upwards of $30 based on some optimistic estimates of its forward earnings. Investors can always lower their cost of acquisition by buying up the shares at the current depreciated value and then wait for the company to do something.
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Curiously, despite all the incessant hammering of its shares, the stock is still trading at 33 times its forward earnings for the next year.