The Beginning of the End for Facebook

NEW YORK (TheStreet) -- I've never been a big fan of Facebook (FB), definitely not the stock, and perhaps to a lesser extent, the application. The stock is ridiculously priced at 208 times trailing earnings, 48 times 2014 consensus earnings estimates, more than 10 times book value, and 18 times revenue. Keep in mind that these sentiments are from a value investor, who simply can't fathom those multiples, and growth investors would make the argument that those measures are irrelevant in Facebook's case.

Indeed, the stock has been on a tear since mid-July, following a better-than-expected quarter after an aggressive push into mobile advertising, and shares are up nearly 80% since then. The stock has finally managed to eclipse its intraday high of $45 from its very first day of trading on May 12, 2012 while the company now boasts of having more than 1 million advertisers. That's impressive, and one of the reasons that investors are re-engaged.

FB Chart FB data by YCharts

There is no doubt that some investors have made money from owning the stock, and I am not discounting the possibility that shares may run even higher. We've seen countless examples of overvalued companies continuing to head higher -- well beyond their true value. It's yet another example of the inefficiencies that make the markets and investor psychology so fascinating. Investors will continue to buy names, such as Facebook, that are priced for perfection.

In the past few days, two things happened, neither of which relates to the company's financials, that have me again questioning Facebook's prospects. Granted, these are completely anecdotal in nature and their relevance is more from the gut, than from the mind. In fact, I was not even planning on writing about Facebook today, but can't help myself.

The first thing was an article in our newspaper entitled " Facebook's Fall From Cool," written by a local high school student. In the article, the young author proclaims that Facebook has become an "obligation," as opposed to a "source of entertainment."

Now, that may be nothing new. The article itself caused me to quiz my own teenagers, who told me in no uncertain terms, that kids have turned away from Facebook, and would rather use Twitter or Instagram. Now, the fact that Facebook bought Instagram last September is certainly not lost on me. The question is: when will the kids also tire of Instagram, and what will take its place? Perhaps Facebook will be the force behind the next hot social media application, but that is presuming a lot.

The second thing that happened, which has dampened the little enthusiasm I had remaining for Facebook itself, was a series of posts by one of my own Facebook friends, who is a very decent guy.

Two days ago, he mentioned that he'd be undergoing a colonoscopy, likening it to April 15 -- tax day. That was fine, actually funny, but still much more than I, or anyone else needs to know.

Then late yesterday came the recap of the procedure, four paragraphs worth. Too much information. It was enough to sour me from logging on, and reading about anyone's latest medical exploits, or how little Billy can now recite pi out to 400 decimals. They should perhaps rename it "Bragbook," or "TooMuchInformationIDon'tCareAboutBook."

Mark Zuckerberg has publicly stated that he never intended for Facebook to be cool. But I can't help but question the growing, albeit anecdotal, sentiment of Facebook fatigue. This does not mean that the company won't continue to earn millions of dollars. It just means, that in my view, it is hard to make the case that the company, currently valued at $112 billion, is worth more than either McDonald's ( MCD), or Home Depot ( HD), or DuPont ( DD) and Walgreen ( WAG) combined.

There's often a disconnect between price and value, and we may once again be seeing it here.

My gut could certainly be wrong, it would not be the first time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, Heller had no positions in stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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