Here’s Why I LOVE Facebook the Company, But HATE Facebook the Stock

I have been very vocal warning regular at-home investors that Facebook (NASDAQ:FB) is a DANGEROUS stock. Of course, I get a completely polarized set of responses via comments and email:

1) Unprofessional investors who LOVE Facebook say I am 3-sheets-of-acid crazy, while,

2) Professional investors agree the valuation is atrocious and probabilities of strong ROI are horrible.

Don’t Miss: Analysts STOMP on Facebook Rally.

Yes, a clear pattern has emerged. As with all investment fads and scams, people who know nothing about savvy investing think successful investors like me are morons. I only need reach back to memories from 2007 when I sold all my stocks and warned others to do the same while they said I simply didn’t understand real estate and banks were heading to the moon.

Well, for all the other people who love Facebook’s product like I do, let this sketchy Wall Street behavior raise your suspicions about Facebook’s stock: Morgan Stanley (NYSE:MS) was the lead underwriter of Facebook’s IPO at $38, yet their research division now says the stock will be worth the same $38 in 12 months. Let me translate for the at-home investors: even Facebook’s investment bank thinks the stocks is a HORRIBLE investment (unless, of course, you love a huge amount of risk for zero reward).

If you don’t invest often, by now you’re probably wondering how that’s possible. Maybe Morgan Stanley isn’t aware of Facebook’s growth potential! WRONG:

“Our base case scenario assumes that Facebook’s revenue growth moderates as it takes a measured approach to increasing mobile ad load while engagement increasingly shifts to mobile devices. Facebook enters an investment cycle characterized by compressed adjusted operating margins in C2012/13E. Facebook grows total revenue at a +28% CAGR from C2013-16E, while advertising revenue (+31%) grows substantially faster than payments revenue (+17%) due to casual games being played increasingly through mobile devices. We forecast C2013E adjusted EBITDA margin of 60% in this scenario.”

How did other Wall Street banks who pumped Facebook pre-IPO weigh in? Goldman Sachs (NYSE:GS) initiated its coverage with a “buy” rating and a $42 price target. Like Morgan Stanley, Bank of America (NYSE:BAC) gave the stock a neutral rating and $38 price target. And Citigroup (NYSE:C) said get ready to LOSE MONEY with a neutral rating and a $35 price target.

So there you have it Facebook bulls. Wall Street once again duped us. This is another example that stock prices are not necessarily reflective of underlying value. Pull up a chair and watch Facebook’s multiple melt as fast or faster than the company can increase monetization

Don’t Miss: Underwriters Chime In on Facebook’s ROLLERCOASTER Ride.